The U.S. Securities and Exchange Commission is stepping up its fight against so-called “naked” short sellers as equity markets continue falling.

The SEC today announced several coordinated actions to strengthen investor protections against “naked” short selling. Unlike its earlier measures that applied to a select group of large financial institutions, today’s actions will apply to the securities of all public companies.

Today’s actions go beyond its previously issued emergency order. The commission has adopted, on an interim final basis, a new rule requiring that short sellers and their broker-dealers deliver securities by the close of business on the settlement date (T+3). If a short sale violates this close-out requirement, then any broker acting on the short seller’s behalf will be prohibited from further short sales in the same security unless the shares are not only located but also pre-borrowed.

Although the rule will be effective immediately, the commission is seeking comment during a period of 30 days on all aspects of the rule. It expects to follow further rulemaking procedures at the expiration of the comment period.

Additionally, the SEC approved a final rule to eliminate the options market maker exception from the close-out requirement. As a result, options market makers will be treated in the same way as all other market participants, and required to abide by the hard T+3 closeout requirements.

It also adopted a rule, which expressly targets fraudulent short selling transactions. The new rule covers short sellers who deceive broker-dealers or any other market participants. Specifically, the new rule makes clear that those who lie about their intention or ability to deliver securities in time for settlement are violating the law when they fail to deliver.

The new rules are effective at midnight tonight.

“These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling,” said SEC chairman, Christopher Cox. “The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation.”

IE