SEC temporarily bans 'short selling' in 799 financial stocks

The government made it official today: In the case of 799 financial stocks, prices should only go up for the next month.

Whether the feds get their wish remains to be seen. But the Securities and Exchange Commission's emergency ban on "short selling" of financial issues is having the desired effect this morning, driving share prices sharply higher.

The SEC said it acted because "recent market conditions have made us concerned that short selling in the securities of a wider range of financial institutions may be causing sudden and excessive fluctuations of the prices of such securities, in such a manner so as to threaten fair and orderly markets."

In a short sale an investor borrows stock (usually from a brokerage's inventory) and sells it, expecting the price to decline. If the bet is correct the investor can buy shares later to replace the loaned stock and pocket the difference between the sale price and the repurchase price.

Short sellers have been blamed for helping to hammer down shares of many banks and brokerages this year. Whether those stocks would have fallen just as much without the effect of the shorts, we'll never know. In any case, the SEC has decided that the need for "confidence in our financial markets" justifies fencing off financial-company stocks from short sellers for the time being.

The emergency rule is effective immediately and will be in place until Oct. 2. The SEC could extend it at that point, but the commission says the rule won't be in effect longer than 30 days in total.

To see the order and the entire list of stocks now protected from new short sales, go here.

Comments

[EdwinG]

Short Selling, that's oxymoron on the part of Wall Street, why allow investment brokers to use other people's money? Anyway, is it possible to let Paulson become the President for the next three months and bridge the retirement of Pres. Dubya? Did you notice he needs Bernanke, Paulson and Cox on his side as he spoke just in case he fumbled again and missed the key phrases. Well, he used high fallutin' words, "unprecendented" indeed, he described his Administration as un-presidential that resonates to Hoover era. Thanks God there is Paulson, computer generation that stopped the bleeding. However, the general public is not safe yet until people get jobs to pay mortgages, credit card debts, purchase consumer goods those are the prescription to bring back normalcy to commerce. Stop outsourcing, bring down the price of Oil, buy products Made in USA and last but not the least, Stop McCain-Palin so as not to get the same pain and failin'. So far, what was done was institute RTC, which is equivalent to Financial FEMA, oops, not referring to the anemic Fema assisting the hurricane victims.

[ChetI]

No, short selling is not oxymoronic. Just like when you buy a stock you're betting the stock goes up, when you short a stock you're betting it goes down. The risk is the exact same, and many people argue that short selling is important to the pricing of the stock and with out shorting the prices are now inflated. Excuse me, the risk was the same until the SEC under Cox got rid of the uptick rule and didn't enforce the laws against naked shorting until just recently when everything is collapsing. Short selling is perfectly fine as long as it's by the rules. THe problem that we had was that institutions and individuals weren't playing by the rules and would delibrately pound a stock, create fear and panic (often by telling rumors and the such that question the companies viability) and let the market take the stock down further which made it very lucrative for these people. I will agree that most of this falls on the shoulders of this administration because they have created a laisez-faire enviornment which is why the SEC didn't enforce the laws and removed some that were meant to protect people. It's because they saw those laws as anti-laisez-faire. Look where it's gotten us now.

[Manolo D]

Feds should ban short selling permanently. We should not allow anybody borrowing stocks, sell and replace, period. Time to regulate wall street and time for the whole Bush administration to resign for deregulation that made this worst economic meltdown. We do this and we don't need to bailout companies using our taxes.

[PasadenaMom]

That's our George for you. "Anyone engaging in illegal financial transactions will be caught and PERSECUTED". That's from the same President that gave us Guantanamo. And, he says he graduated from Yale? Can we see the transcripts?

[Roger Krueger]

Too funny, the SEC utterly fails to do its job, and now they've found a publicly unpopular scapegoat to pin it on.

Maybe if they hadn't granted ALL FIVE major brokerages an exception to the 12:1 legal leverage limit they wouldn't have gotten in so much trouble. When you're leveraged 35:1 as most were it doesn't take much to put you underwater.

Worse, they're making it clear they don't care long-term about what abusive shorting there is, not at all. Naked shorting is a complete red herring, some arbitrary ability to borrow is irrelevant.

What would matter is disclosure. If you're 5% (of the market cap) long a company you need to publicly disclose it. Why then can you be 5% short--or 50% short--and disclose nothing?

They've also potentially made volatility worse, the one type of person motivated to buy when the market is going down hard is a short locking in their profits.

[Investment Adviser]

Banning short sales simply wrong and contrary to the free market principles we espouse. It is so clearly "changing the rules in the middle of the game"...all market participants play an important role including short sellers. Certainly, the SEC should enforce the regulations against "naked short sales" and could bring back the up-tick rule...but protecting 799 companies from the market is unprecedented.

Let's be blunt...those who were shorting Fannie Mae, Bear Stearns, Lehman Brother et al were RIGHT! In the end, they served an important role by taking down these "houses of cards".

[Maggie%20Knowles]

All of you have it wrong. Cox is doing what he agreed to do, Mission Accomplished. Get It Yet?

They aren't there to do your or my bidding. They're working for oil, just like the administration and the dept. of interior...

...the beat goes on and on and on and on... until we stop it. Vote Obama!