In a desperate effort to shore up the finance industry, the U.S. Securities and Exchange Commission has barred outright short-selling in nearly 800 financial stocks.
The emergency order, which expires in 10 days but can be extended for up to 30, covers the shares of 799 financial services firms. In addition to the short-selling ban, which is effective immediately, the SEC rolled out a series of other measures designed to curb short-selling, including new disclosure requirements.
The SEC moves follow a similar, four-month ban imposed by Britain’s Financial Services Authority yesterday.
“The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets,” SEC Chairman Christopher Cox said. “The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets. 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.”
Under the new rules, adopted during a late-night meeting of the agency, institutional money managers, including hedge funds, will have to disclose new short positions in some stocks. The SEC also gave companies greater flexibility to repurchase shares in an effort to boost liquidity.
The moves raised hackles from the hedge fund industry. Richard Baker of the hedge fund lobbying group the Managed Funds Association told The Wall Street Journal, “if in fact a company does fail, it will have nothing to do with the fact that someone on the outside noticed these deficiencies.”
Kynikos Associates’ chief James Chanos was less diplomatic.
“While this is all politically pleasing to the regulatory powers that be, the fact of the matter is that there has been no evidence presented of short-sellers circulating false rumors to drive down the price of stocks,” he told the Journal.
Just two days ago, the commission adopted three new rules aimed at curbing naked short sale.
Meanwhile, both Fed Chairman Ben Bernanke and Treasury chief Henry Paulson have asked Congress to give the federal government the authority to buy illiquid assets that are dragging Wall Street down. And New York State Attorney General Andrew Cuomo announced a probe into whether short sellers are spreading rumors to drive down stock prices.
Press Release: STANY Responds to SEC Actions on Short Selling