South Dakotans defeated a ballot measure to ban naked short selling in yesterday’s election.
Of the 338,000 people who voted on Measure No. 9, or “The South Dakota Small Investor Protection Act,” 56.6 percent voted not to create a law that would penalize broker-dealers registered in the state for affecting naked short sales.
The Securities Industry and Financial Markets Association, which had vowed to take legal action if the measure had passed, praised the citizens of South Dakota. The organization called the measure “an attempt by non-state residents to manipulate the local political process for purposes largely unrelated to the state.”
SIFMA president and chief executive Tim Ryan said in a statement: “Too often, outsiders have swooped into South Dakota to manipulate local ballot initiatives for purposes largely irrelevant to the needs of local citizens. South Dakotans clearly saw through this ploy, and they should be congratulated for their insightfulness.”
SIFMA had already won a repeal of a similar law in Arizona.
If South Dakotans had voted ‘yes’ on Measure 9, the state securities industry regulator would have been required to censure, bar or fine any broker-dealer registered in the state for violating the new rule.
Violation meant failing to deliver a security for settlement within three business days or selling securities that the person “did not own or have a bona fide contract to purchase.”
Critics of the measure, including SIFMA, complained the new law would’ve banned all short sales because no short seller owns the securities he is selling. The wording of the law is unclear.
Behind the measure was a grass roots organization called American Entrepreneurs for Securities Reform, based in Union, Mo. Despite its loss last night, the group has vowed to introduce similar proposals in 18 other states. It recently announced it would initially target Arizona, California, Nevada and Oklahoma.
Much of the South Dakota power structure opposed Measure 9, calling it bad for business. The fear was that brokers would leave the state if it passed. The South Dakota Division of Securities of the Department of Revenue and Regulation, the Sioux Falls Area Chamber of Commerce and the state’s two biggest newspapers had urged citizens to vote ‘no.’
