SEC Loosens Short Sale Restrictions

Sep 23 2008 | 11:29am ET

The Securities and Exchange Commission has announced further changes to its new short-selling restrictions, just three days after they were promulgated.

The changes include a new two-week delay in making public hedge funds’ short positions. Hedge funds and other money managers still have to report their positions to the regulator the first Monday following the trade.

Meanwhile, the chief U.S.  lobbying group for hedge funds is pushing to make that two-week delay permanent.

The Managed Funds Association, in a Sunday letter to the SEC, says the new short-selling rules unfairly pin the blame for the financial crisis on hedge funds. It asked the agency to require only private disclosure of short positions by hedge funds. Wall Street’s woes are the result of “poor lending, risk management and disclosure decisions, made historically by many financial institutions, and not from short-selling activities,” MFA President Richard Baker, a former Republican congressman, said in the letter.

The SEC also loosened what had been an outright, if temporary, ban on shorting the stocks of 799 financial firms, exempting market makers in certain situations to allow them  “to continue to provide liquidity to the markets.” Still, the regulator warned that shorting for profit was still forbidden, and that market makers are still not allowed to short for a customer if it would give them a net short position in a security.

The MFA also asked the SEC to allow hedging, a concession the agency made in revising the rules.

The SEC also delegated authority over the no-shorting list to stock exchanges. NYSE Euronext and the Nasdaq OmX Group quickly added a total of 137 companies to the list.

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