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SEC Extends Ban on Short Sales to Let Congress Approve Bailout
By Jesse Westbrook
Oct. 2 (Bloomberg) -- The U.S. Securities and Exchange Commission will extend a prohibition on short-sales of financial stocks, keeping restrictions on bets against companies' shares in place while Congress works on a $700 billion bailout plan.
The restriction will expire three days after lawmakers give Treasury Secretary Henry Paulson authority to buy illiquid assets that are burdening banks and other financial firms, the SEC said in a statement yesterday. The short-sale prohibition will end no later than Oct. 17 if Congress fails to complete passage of the measure approved by the Senate last night.
``There are circumstances in which short selling can be used as a tool to mislead the market,'' the SEC said in its statement announcing the extension. It can be used as a ``downward manipulation'' in which traders spread ``lies about a company's negative prospects.''
The SEC took on short-selling last month after Morgan Stanley Chief Executive Officer John Mack and New York Senator Charles Schumer blamed the practice for driving companies to the brink of collapse. Hedge funds opposed the ban, arguing that regulators were blaming traders for companies' mismanagement and the banking industry's over-concentration in mortgage-backed securities that lost value after credit markets froze last year.
Under the SEC rules, investors are barred from short- selling almost 980 stocks, from New York-based Citigroup Inc., the biggest U.S. bank by assets, to firms getting a fraction of revenue from financial activities such as Fort Lauderdale, Florida-based AutoNation Inc., the largest U.S. car dealer.
Short-sellers try to profit by betting stock prices will fall. In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference.
Hedge Funds
The SEC handed hedge funds a victory by dropping a separate rule requiring investors who manage more than $100 million to publicly disclose their short positions. The SEC is now requiring funds to only reveal short positions to the agency. That requirement may be in place indefinitely, the agency said.
In addition, the regulator continued its crackdown on so- called naked shorting by adopting two regulations that pressure traders and brokers to actually deliver borrowed shares to buyers. A third rule extension makes it a securities fraud when sellers deceive brokers about delivering borrowed shares.
The SEC acted amid concern investors are using abusive tactics to flood markets with sell orders and drive down stock prices.
To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
Last Updated: October 2, 2008 00:01 EDT
By Jesse Westbrook
Oct. 2 (Bloomberg) -- The U.S. Securities and Exchange Commission will extend a prohibition on short-sales of financial stocks, keeping restrictions on bets against companies' shares in place while Congress works on a $700 billion bailout plan.
The restriction will expire three days after lawmakers give Treasury Secretary Henry Paulson authority to buy illiquid assets that are burdening banks and other financial firms, the SEC said in a statement yesterday. The short-sale prohibition will end no later than Oct. 17 if Congress fails to complete passage of the measure approved by the Senate last night.
``There are circumstances in which short selling can be used as a tool to mislead the market,'' the SEC said in its statement announcing the extension. It can be used as a ``downward manipulation'' in which traders spread ``lies about a company's negative prospects.''
The SEC took on short-selling last month after Morgan Stanley Chief Executive Officer John Mack and New York Senator Charles Schumer blamed the practice for driving companies to the brink of collapse. Hedge funds opposed the ban, arguing that regulators were blaming traders for companies' mismanagement and the banking industry's over-concentration in mortgage-backed securities that lost value after credit markets froze last year.
Under the SEC rules, investors are barred from short- selling almost 980 stocks, from New York-based Citigroup Inc., the biggest U.S. bank by assets, to firms getting a fraction of revenue from financial activities such as Fort Lauderdale, Florida-based AutoNation Inc., the largest U.S. car dealer.
Short-sellers try to profit by betting stock prices will fall. In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference.
Hedge Funds
The SEC handed hedge funds a victory by dropping a separate rule requiring investors who manage more than $100 million to publicly disclose their short positions. The SEC is now requiring funds to only reveal short positions to the agency. That requirement may be in place indefinitely, the agency said.
In addition, the regulator continued its crackdown on so- called naked shorting by adopting two regulations that pressure traders and brokers to actually deliver borrowed shares to buyers. A third rule extension makes it a securities fraud when sellers deceive brokers about delivering borrowed shares.
The SEC acted amid concern investors are using abusive tactics to flood markets with sell orders and drive down stock prices.
To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
Last Updated: October 2, 2008 00:01 EDT
I guess if one buys the same gloom and doom into which our elected officials seem to be buying heavily, and extrapolates that this bailout crap, whatever form it takes will cure the economy, then one should be +200% long.
Is anyone totally invested to the long side in equities?
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