Lawmaker asks SEC to consider halting short selling
WASHINGTON, Sept 24 (Reuters) - U.S. lawmakers asked financial regulators on Monday to consider putting a temporary halt to short selling, saying the practice may be putting further pressure on already fragile markets.
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``I am concerned that the confluence of negative macroeconomic forces and possible short selling and speculation in stocks from industries now under pressure may be adding to the downward cycle we are seeing in the markets since trading resumed on Monday,'' said New York Democrat John LaFalce, ranking member of the House Financial Services Committee.
``To the extent that short sellers have played a significant role in creating the current market conditions, I request that you consider the appropriateness of certain measures, including inhibiting short selling,'' LaFalce said in a letter to Securities and Exchange Commission head Harvey Pitt.
Short selling is a common but risky way of exploiting a fall in share price by selling borrowed shares, buying them back later at a cheaper price and keeping the difference as profit.
The Commission has the power to alter or suspend activities, such as short selling, if it decides it needs to do so to protect the public interest of investors, LaFalce said, citing the Securities Exchange Act of 1934.
Market regulators across the world have begun to look into the possibility that people with prior knowledge of the Sept. 11 jetliner attacks in New York and near Washington sold shares short, betting that the deadly events would drive down stocks, including insurance and airline shares.
There have also been reports that put options, whose value rises as underlying shares slip, were bought in large quantities in the run-up to Sept. 11, when hijacked airliners smashed into the World Trade Center and the Pentagon.
LaFalce also asked Pitt to analyze current market conditions to determine whether short selling or other similar activities have contributed to recent market declines.
Last week, the first full week of trading since the attacks, investors dumped stocks amid worries about the cost of possible U.S. military retaliation, massive layoff announcements and signs the economy may slide into a recession.
The Dow Jones industrial average skidded 1,370 points, its biggest weekly weekly loss since the Depression in the 1930s.
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