Hedge Fund Lobby Defends ‘Vital’ Short-Selling

Apr 9 2009 | 1:53am ET

The hedge fund industry yesterday rallied to defend short-selling after the Securities and Exchange Commission proposed new restrictions on the controversial practice.

A pair of lobbying groups issued statements opposing the regulator’s move. The SEC yesterday proposed five possible rules covering short-selling, including several different versions of the uptick rule is abolished two years ago.

But Richard Baker, the former congressman who heads the Managed Funds Association, said that short-selling is a “legitimate, vital investment strategy that adds liquidity to the markets and facilitates fair price discovery.”

“We do not want to see new policy turn into a back-door ban on short-selling.”

Meanwhile, Kynikos Associates’ James Chanos, the head of the Coalition of Private Investment Companies, blasted the proposed rules as “ill-concieved.”

“In recent years, short-sellers have publicly warned the marketplace about the dangers at AIG, Lehman Brothers, and Enron, as well as sounding the alarm over the credit ratings agencies, non-bank subprime lenders, and credit insurers,” he said. “Proposals to inhibit short-selling have the effect of limiting this vital market-based antidote to corporate fraud and speculative bubbles, and must be carefully weighed against the clear harm that comes from ill-conceived government intervention in basic market functions.”

The SEC’s temporary ban on short sales of financial stocks last year was blamed in part for the huge losses the industry suffered in the fourth quarter.


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