Short sellers unbound; Lehman D-Day looms; and more
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A few items of note from around the markets today:
--- Free to Be Short (Again): The Securities and Exchange Commission’s temporary ban on shorting of financial stocks (and even some stocks barely related to finance) expired at midnight on Wednesday, so the stocks are fair game again for bearish short sellers beginning today.
Did the ban make a difference? It took effect Sept. 19. Measured from Sept. 18 through Wednesday, the average financial stock in the Standard & Poor’s 500 was down 23.5%, compared with an 18.4% drop in the S&P 500 itself. Maybe the financials would have fared worse without the ban, but the SEC’s move also wreaked havoc with the market in other ways. This Bloomberg News story covers the bases on the ban’s unintended consequences. (Or maybe they were intended; who know what the SEC Chairman Christopher Cox was really thinking. . . .)
--- Lehman D-Day Nears: One theory about why credit market turmoil has failed to ease significantly in the last week -- and why stock prices keep falling -- is that big investors are petrified over the losses the financial industry could suffer on credit default swaps tied to bankrupt Lehman Bros. Holdings Inc.
Those derivatives -- insurance policies against a debt default -- will be settled in an auction on Friday, and Wall Street fears the stress on the financial system from billions of dollars of settlement costs, as investors who wrote the insurance are forced to pay up. But Portfolio.com’s Felix Salmon, for one, isn’t too worried about the outcome. He has a good explainer here.
--- Uncle’s Money-Fund Backstop: Money market mutual fund firms have nearly all signed up for the temporary U.S. insurance plan set up by the Treasury last month, reports Pete Crane, the editor of Money Fund Intelligence newsletter. The plan was hurried into place after the Reserve Primary fund lost money on Lehman Bros. IOUs and the fund’s share price ‘broke the buck.’ That triggered a rush of cash out of money funds in general.
The outflow continued from some funds even after the insurance plan was announced, but it has slowed sharply in recent days, according to iMoneyNet Inc.
Wednesday was the deadline for fund companies to join the voluntary insurance plan. The program protects money fund shares that investors held as of Sept. 19, but not investments made after that. The Treasury has a Q&A on the program here. The Investment Company Institute has a Q&A here.