Business | Markets
SEC bans short-selling of 799 stocks
The US government, trying to boost investor confidence in the face of a market crisis, took the unprecedented step on Friday of temporarily banning a practice of betting against financial stocks.
- AP
- Published: 23:42 September 19, 2008
- Traders work at the New York Stock Exchange on Thursday, the day US stocks skyrocketed as the world's biggest central banks planned to pump $247 billion into the financial system and regulators started to crack down on abusive speculation against bank shares.
- Image Credit: Bloomberg News
Washington: The US government, trying to boost investor confidence in the face of a market crisis, took the unprecedented step on Friday of temporarily banning a practice of betting against financial stocks.
The move by the Securities and Exchange Commission (SEC) will temporarily ban what is called short-selling of 799 financial stocks.
The rule took effect immediately yesterday and extends through 11.59pm EDT on October 2 (0359 GMT on October 3).
Short selling involves borrowing a company's shares, selling them, and pocketing the difference when the stock falls. It is a legitimate method of trading - it can make markets more efficient and bring in more capital - but the government argues that it has widened the scope of the recent financial crisis and contributed to the collapsing values of investment and commercial bank stocks in particular.
The SEC also eased restrictions on the ability of companies to buy back their own shares, also through October 2, a move aimed at helping restore liquidity to the distressed and volatile market.
Turmoil on Wall Street
The turmoil has swallowed some of the most storied names on Wall Street. Three of its five major investment banks - Bear Stearns, Lehman Brothers and Merrill Lynch - have either gone out of business or been driven into the arms of another bank.
In its announcement, the SEC said it was acting in concert with the UK Financial Services Authority, which announced a similar ban there Thursday. Some British politicians claim short-selling was partly responsible for HBOS's abrupt takeover by banking rival Lloyds TSB PLC on Thursday.
The SEC said it hoped its move would protect the integrity of the securities markets and boost investor confidence.
The agency said it wanted a time out on aggressive, "unbridled" short-selling in financial stocks, and said it would consider measures to address short-selling in other publicly traded companies.
"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 in a statement. "The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets."
Cox said the moves would not be necessary in a well-functioning market and are only temporary steps. He had met Thursday night with members of Congress.
New York (AFP) Global markets surged again yesterday as President George W. Bush said he was ready to "risk" hundreds of billions of dollars to beat the financial crisis.
With a top US senator estimating that $1 trillion may be needed to soak up the debt that killed off Lehman Brothers and brought other Wall Street icons to their knees, central banks around the world again spent massively to steady the groggy markets.
But Morgan Stanley still looked to be on the way to a forced marriage, and analysts differed over whether the turmoil had peaked.
US stocks soared another 3.47 per cent yesterday after a 3.5 per cent gain Thursday when Bush announced that the US government would take drastic action to tackle the bad debts at the heart of the crisis.
London's FTSE 100 index was up more than nine per cent, Paris added 7.54 per cent and Frankfurt put on more than five per cent.
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