By FLOYD NORRIS The New York Times

A funny thing happened to its stock when General Motors went bankrupt. The shares did not go directly to zero, even though it appears clear the old shares are worthless. The new GM, owned by the government and a union health fund, may or may not prosper, but the old shareholders will lose out either way.

Market regulators were appalled. "They asked me whether Grandma Jones was being stupid" and buying the stock because she did not understand what was happening, said R. Cromwell Coulson, the chief executive of Pink OTC Markets, the market where dead stocks go to trade.

The regulators promptly forced a change in name and ticker symbol, hoping that would clear up the confusion. The old company's new name is Motors Liquidation Co., with a ticker symbol of MTLQQ. It trades in Coulson's market.

But it did not work. The shares still trade for about 60 cents each, giving Motors Liquidation a market capitalization of about $370 million. Not bad for a worthless piece of paper.

There has been absurd trading in bankrupt shares before, but it appeared to Coulson that this trading was going on longer than in past deals.



Now he thinks he knows why. A new rule of the Securities and Exchange Commission, which took effect in July, has made it virtually impossible for anyone to sell Motors Liquidation shares short, and is gradually forcing those who had short positions to close them out.

That is good news for shareholders, if not for believers in efficient markets. "I think more Grandma Joneses are getting a chance to sell GM at a higher price," Coulson said.



"The structure of the market is, if you can't borrow it, you can't sell it short."

In a short sale, a traders normally sells borrowed shares and then pay them back with shares purchased later, at what they hope will be a lower price.

As can be seen from the accompanying graphic, the outstanding short position in Motors Liquidation stock has been steadily falling since the company went bankrupt. Contrast that to another prominent bankruptcy a few years ago, of the old Delta Airlines. It is clear that some people were able to sell the shares short during the bankruptcy, and that there was a flood of short selling shortly before the shares were formerly canceled.