Powershares SKF is Halted

Powershares SKF is Halted

Christopher Cox, Chairman of SEC, has banned short-selling in financials until October 2. Through previous bans, investors were still able to trade the Powershares SKF, the 2x levered short financial fund. Today, however, it was halted.

The SEC has taken the drastic step of curtailing all short-selling in 799 financial stocks.  As Harvey Pitt, former chairman of the SEC, stated on CNBC this morning, this is a very drastic measure which will probably wipe some people out.

A previous also risky instrument that investors have used to short or hedge exposure to financials was through the Powershares SKF, a two-time levered short fund.  This fund continued in operation during the post-Bear Stearns ban.  It traded yesterday morning as high as 153, and traded post-Bear Stearns at 210.  It closed yesterday at 118, and traded this morning as low as 87, which was a post-Bear Stearns low.  The volatility has been extraordinary.  As I warned in this article, this thing is a disaster for investors waiting to happen.

This morning, this disaster was probably realized for many.  It bounced up and traded around 100 while Paulson was speaking, and then Powershares halted it.  There reason is that the underwriters can no longer place the trades that underwrite it.

When and if this thing ever opens, it may trade at 20 or it may trade at 300.  Who knows?  I am glad that I am not in it, because I know that with this type of volatility it would be weeks before I would be able to sleep again.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • AronLiv

    September 20, 2008

    It seems to have reopened after 2 hours, but you are right that it is insanely risky.

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