SEC issues temporary ban on short sales
Friday September 19, 7:50 am ET
WASHINGTON/NEW YORK (Reuters) - The U.S. Securities and Exchange Commission issued an emergency order on Friday temporarily halting the short selling of 799 financial stocks in an effort to protect investors and markets.
ADVERTISEMENT
The measure underscores growing concerns that short-selling has led to sharp declines in U.S. and European financial stocks since the onset of the credit crunch.
"The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets," SEC Chairman Christopher Cox said in a statement. "This action, which would not be necessary in a well-functioning market, is temporary in nature and part of the comprehensive set of steps being taken by the Federal Reserve, the Treasury, and the Congress."
The SEC order followed a formal SEC meeting on Thursday night and a separate extraordinary meeting that Cox attended in the Capitol building the same evening. At that session, senior administration officials asked Congressional leaders for additional authority to soothe turbulent capital markets.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke asked top lawmakers for legislation that would give the U.S. government the power to buy up illiquid assets that are plaguing financial companies.
The SEC order will end at 11:59 p.m. EDT on October 2, and may be extended for 10 days if the agency deems it necessary. The SEC measure can only last a total of 30 calendar days.
Under the emergency order, institutional money managers will be required to report their new short sales of certain publicly traded securities. Investors are already required to report significant long positions.
The SEC also temporarily eased restrictions to give companies more flexibility to repurchase their stock.
Short sellers borrow stock in anticipation the price will fall, allowing the stock to be bought back more cheaply.
A widely followed exchange-traded fund that tracks the S&P 500 financial sector, the Financial Select Sector SPDR (AMEX:XLF - News), rose 17 percent in U.S. premarket trading.
The SEC order followed similar action by the U.K. Financial Services Authority, which imposed a temporary four-month ban on short-selling of financial stocks on Thursday.
The U.K. ban drove up stocks there by as much as 40 percent. Ireland also announced a ban on short sales, while Australia said it would ban so-called naked short-selling starting next Monday.
TD Ameritrade Holding Corp Chief Executive Joe Moglia told CNBC on Friday he did not know before this morning that his online brokerage company was on the SEC's list of stocks included in the short-selling halt.
He said the investor community is entitled to engage in short selling but acknowledged emergency action is needed in turbulent times.
"This is an emergency mode. This is a crisis mode," Moglia said. "So for Congress and regulatory bodies to be able to step up and say at least temporarily we think we need to do this and move quickly, I support that."
Financial companies have pushed the SEC to take more action to end abusive short selling that they said was unfairly driving down their stock prices, especially after Lehman Brothers Holding Inc (Other OTC:LEHMQ.PK - News) was forced into bankruptcy protection earlier this week and Merrill Lynch & Co Inc (NYSE:MER - News) agreed to be bought by Bank of America Corp (NYSE:BAC - News).
On Wednesday, the SEC issued rules requiring short sellers and their broker-dealers to deliver securities by the close of the business on the settlement date, three days after the sale.
Friday's SEC emergency action goes even further, saying, "The Commission will continue to consider measures to address short selling concerns in other publicly traded companies." |
