Shaking in their shorts

Shaking in their shortsA handful of heavily shorted small cap biotechs got a bounce last week after the U.S. Securities and Exchange Commission announced new actions intended to eliminate "naked" short selling - the abusive practice of shorting of shares without borrowing them, and then failing to deliver them to the buyer within three business days after the settlement date. SEC also said it is considering requiring public disclosure of short positions.

Changes that were announced Wednesday and went into effect Thursday include penalties for failing to deliver securities within three days of the initial transaction, elimination of the exception from the three-day delivery requirement for options market makers, and a rule making it clear that deception about the intention or ability to deliver securities is a violation of the law.

On the first action, the agency is acting on an "interim final basis" during a 30-day comment period.

"I think it's about time that they changed it. A lot of these stocks just get beaten down; a lot of the pain would be avoided," said Sven Borho of OrbiMed Advisors.

"It should create some short squeezes on heavily shorted stocks, like Cell Genesys and Dendreon," he added. "It doesn't have any impact really on blue chip biotech companies."

Cancer vaccine company Dendreon(NASDAQ:DNDN), which had 33.6 million (36%) shares short at Aug. 29, gained $1.29 (20%) to $6.50 since its close on Tuesday. At June 3, there were 1.5 million Dendreon shares that investors had failed to deliver. Shares not delivered is an indicator used to estimate naked shorting.

Fellow cancer vaccine company Cell Genesys (NASDAQ:CEGE), which had 17.7 million (21%) shares short at Aug. 29, gained $0.14 (22%) to $0.77 between its Tuesday close and week's end. At June 3, there were 726,000 Cell Genesys shares that investors had failed to deliver.

Another heavily shorted company, neurology play Pozen(NASDAQ:POZN), got an uptick of $2.33 (24%) to $12.22 after Tuesday's close. At Aug. 29, it had 6.4 million (21%) shares short, with 484,000 shares that traders had failed to deliver at

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