SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets

[phantom power]

SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets
FOR IMMEDIATE RELEASE
2008-211
Commission Also Takes Steps to Increase Market Transparency and Liquidity

Washington, D.C., Sept. 19, 2008 — The Securities and Exchange Commission, acting in concert with the U.K. Financial Services Authority, took temporary emergency action to prohibit short selling in financial companies to protect the integrity and quality of the securities market and strengthen investor confidence. The U.K. FSA took similar action yesterday.
Additional Materials

* SEC Order Halting Short Selling in Financial Stocks
* SEC Order Requiring Institutional Money Managers to Report New Short Sales
* SEC Order Easing Restrictions on Issuers to Re-Purchase Their Securities
* Form SH
* Form SH Instructions

The Commission’s action will apply to the securities of 799 financial companies. The action is immediately effective.

SEC Chairman Christopher Cox said, “The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets. The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets. This action, which would not be necessary in a well-functioning market, is temporary in nature and part of the comprehensive set of steps being taken by the Federal Reserve, the Treasury, and the Congress.”

This decisive SEC action calls a time-out to aggressive short selling in financial institution stocks, because of the essential link between their stock price and confidence in the institution. The Commission will continue to consider measures to address short selling concerns in other publicly traded companies.

Under normal market conditions, short selling contributes to price efficiency and adds liquidity to the markets. At present, it appears that unbridled short selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation. Financial institutions are particularly vulnerable to this crisis of confidence and panic selling because they depend on the confidence of their trading counterparties in the conduct of their core business.

Given the importance of confidence in financial markets, the SEC's action halts short selling in 799 financial institutions. The SEC’s emergency order, pursuant to its authority in Section 12(k)(2) of the Securities Exchange Act of 1934, will be immediately effective and will terminate at 11:59 p.m. ET on Oct. 2, 2008. The Commission may extend the order beyond 10 business days if it deems an extension necessary in the public interest and for the protection of investors, but will not extend the order for more than 30 calendar days in total duration.

http://sec.gov/news/press/2008/2008-211.htm

[Hugabear]

1. And McCain would have fired the head of the SEC

What a FUCKING MORON.

Never forget, this is the same man who was behind the S&L crisis of the 80s.

[phantom power]

2. Opinions seem very mixed on this move...

I don't have an opinion on this, because I don't really understand short selling.

But quite a lot of people think this is a desperate, badly-thought-out move that will undermine the credibility of the market. Even more than it is already, I assume that means.

http://www.haloscan.com/comments/calculatedrisk/2313658346559624526/

[aquart]

3. Well, yes. But short-selling is for gamblers and speculators.

And doesn't do a thing for the economic stability of a nation. The goal of this nation is to ensure the well-being of its people, not provide a craps game so that some few can get rich by rolling the dice instead of working.

We seem to have forgotten that.

[Warpy]

4. If an individual stockholder does it,

he looks at his own stock and picks one he thinks is going to go down. He sells the stock. If it goes down, he buys it back at the lower price and pockets the difference. This is legal.

When a brokerage does it, they borrow stocks from their shareholders, sell them, buy them back and stick them back into the portfolio, pocketing the difference without giving the shareholder a whack. This is barely legal.

A variation on this is predatory short selling, when they pick a company, borrow all of its stock they control through their shareholders and sell it at once, thus causing a panic sell off and forcing the stock price down when it wouldn't ordinarily have gone down. This is also barely legal.

Naked short selling is already illegal, but the laws are not enforced. That's when they don't even borrow the stock, they just put in a sell order and buy it back before anybody notices they didn't have any to borrow and the system just got flimflammed.

From what I understand, they're making the barely legal illegal. Of course, it all depends on whether or not they bother to enforce this law. They haven't seemed particularly inclined to enforce many others.

(Note that this is the quickie explanation for total neophytes and that it isn't meant to cover all the details)

[westerebus]

5. Bad news.

They SEC just changed the rules without notice, not good. Short sellers, if they are correct, think the banks are holding worthless junk. Funny so does Paulson. He and Ben have had months to slow this decline down. Pouring money in so the banks could cover their losses has not worked. Keeping Bear Sterns' books closed didn't help. Fred and Fanny were going down because they were backing a losing bet they couldn't cover. Now it becomes a national crisis as the shorts go after Paulson's old company, Goldman Sachs. Do the math.