U.S. SEC Urged To Act Against Short Selling
Much stronger action against abusive short-selling needs to taken by the Securities and Exchange Commission, a leading US law firm has urged.
Warning of an increase in rumour-mongering and raids by traders seeking to drive down stock prices, Wachtell, Lipton, Rosen & Katz said short-selling was at record levels.
Lehman speculation blamed on short-sellers - Jul-01Fears for US disclosure rules after CSX ruling - Jul-01US companies shun bar code reporting - Jun-29SEC looks to classify oil sands as reserves - Jun-27SEC considers shake-up of reporting rules - Jun-13Eight ex-AOL executives charged with fraud - May-20The firm, a big adviser on mergers and acquisitions, said that the SEC needed urgently to reinstate the 70-year old “uptick rule” – only lifted last year – to dampen volatility and halt manipulative practices in what were “extraordinary” times.
Introduced in 1938 the “uptick rule” was designed to constrain short-selling in a falling market, by requiring that a security could only be sold short at a price above its last sale price.
Short-sellers aim to profit from selling shares they have borrowed by buying them back more cheaply at a later date.
In a memo to clients, Wachtell said the regulator had lifted the rule after a pilot programme, conducted in a period of rising stock markets and low volatility.
The limitations of that pilot had become “painfully clear”, the firm said.“Today, many of the same conditions that led to the adoption of the rule in 1938 are reappearing . . . there are suggestions that false rumours about the demise of firms [such as Bear Stearns and Lehman Brothers] and bear raids are taking place,” said the memo, which was signed by partners Edward Herlihy and Theodore Levine.
Mr Herlihy, co-chairman of Wachtell’s executive committee, often represents companies in takeover battles and proxy contests. Mr Levine, counsel at Wachtell, was previously chief legal officer at UBS PaineWebber and has also worked at the SEC.
Wachtell’s move is unusual because law firms seldom make direct policy recommendations. It comes as regulators worldwide move towards greater constraints on short-sellers, whose presence is felt more as markets decline.
Short-sellers recently have had financial services firms in their sights, giving regulators greater concern because such firms are more susceptible to confidence and the collapse of a bank or broker would have knock-on effects for the financial system.
Wachtell unfavourably contrasted the SEC’s inaction with moves by other regulators, citing the UK’s Financial Services Authority, which has introduced a rule requiring disclosure by short-sellers during a company’s rights issue.
Full Story: ft.com
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