SEC Emergency Order Restricting Short Selling Effective Mon
Last update: 7/16/2008 7:39:50 AM
(This article was originally published Tuesday)
By Carol S. Remond
OF DOW JONES NEWSWIRES
An emergency order that will make it harder for investors to bet against the shares of mortgage behemoths Fannie Mae (FNM) and Freddie Mac (FRE) has been issued but won't be effective until Monday. The order, announced by Securities and Exchange Commission Chairman Christopher Cox earlier Tuesday, was originally expected to take effect later in the day. The rule aims to shore up the stocks of the two embattled government-sponsored entities that own or guarantee about half the nation's mortgages. Cox said earlier Tuesday that the commission would institute an emergency order requiring any traders to pre-borrow stock before shorting Fannie Mae and Freddie Mac. Cox said the order would also apply to the stocks of Lehman Brothers Holdings Inc. (LEH), Goldman Sachs Group Inc. (GS), Merrill Lynch & Co. (MER) and Morgan Stanley (MS). The order issued by the SEC late Tuesday also indicates that the shares of BNP Paribas Securities Corp. (BNPQF), Bank of America Corporation (BAC), Barclays PLC (BCS), Citigroup Inc. (C), Credit Suisse Group (CS), Daiwa Securities Group Inc. (DSECY), Deutsche Bank Group AG (DB), Allianz SE (AZ), Royal Bank ADS (RBS), HSBC Holdings PLC ADS (HBC), Mizuho Financial Group Inc. (MFG) and UBS AG (UBS) will also be covered by the new rule. Under existing rules, short sellers in most cases only have to locate stock available to be borrowed. While the difference seems marginal (and will likely minimally affect short sellers themselves), the move could have an enormous impact on market makers, those firms that inject liquidity in the market. The pre-borrow requirement could also make it harder and more expensive for options market makers to hedge their positions in the stock market. By requiring that firms borrow stock and segregate it from the pool of available shares to borrow, the SEC is likely hoping to slow down short selling and buy time for the federal government to work out a resolution to the current rapid meltdown of Freddie and Fannie's stock prices. Freddie's stock closed down 26% to $5.26, while Fannie's shares slid 27.3% to $7.07. |
