Fan & Fred get another pass -- this time from the NYSE

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In their heyday, Fannie Mae and Freddie Mac got used to special treatment on Capitol Hill. Now they’re getting it from the New York Stock Exchange.

With their stocks below $1 since the government seized control Sunday -- Fannie closed at 74 cents Wednesday, Freddie at 66 cents -- the NYSE’s rules say they should be booted off the exchange floor and should trade only in all-electronic markets.

But the NYSE is allowing the shares to stay on the floor until at least Monday, even as penny stocks that may ultimately be worthless.

Why? The exchange, in a statement, said it believed that ‘the market will substantially benefit from having the most available liquidity and the greatest number of venues in which investors can trade the securities of Fannie Mae and Freddie Mac, and would further benefit from the efforts of the NYSE specialists in those securities to stabilize the markets as public investors react to the news.’

Granted, there’s still plenty of reaction going on. Trading in Fannie topped 331 million shares Wednesday; Freddie’s volume was 215 million.

One big group of investors had no choice but to wait until this week to sell: funds that track the Standard & Poor’s 500 index. S&P waited until Tuesday to kick Fannie and Freddie out of the index, effective at the start of trading Thursday. Fannie will be replaced by nut-and-bolt maker Fastenal Co. Freddie will be replaced by software firm Salesforce.com.

And who’s buying Fannie and Freddie at this point? ‘Short sellers’ who borrowed the stocks and sold them, betting on lower prices, have to purchase new shares to close out their trades and book their profits. Fannie’s shorted total reached a record 182 million shares as of Aug. 29, the NYSE said in its latest short-interest report, issued Wednesday. Freddie’s shorted total was a record 158 million shares.

Except for short-coverers, Fannie and Freddie now are just a vast play area for day traders and other speculators.