The Short Selling Ban

From the WSJ:

The Securities and Exchange Commission on Friday launched an aggressive assault against short-sellers, saying it would temporarily prevent investors from making bets on stock declines in an attempt to stem some of the worst stock-market slides in years.
The SEC, which had convened a late-night commission meeting Thursday to consider several items, said in a statement early Friday morning it is halting short selling on 799 financial stocks. The ban, which is effective immediately, is set to last for 10 days, but could be extended for up to 30 days.
“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. “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.”
The SEC announced other temporary measures, including a requirement for large institutional money managers to report short positions in certain stocks. It also eased restrictions on corporate stock buy backs, saying that will give companies greater flexibility to buy their own shares and help restore liquidity at a time “of unusual and extraordinary market volatility.”
In short selling, traders borrow shares of stock and sell them, hoping the price of the shares declines and they can profit by buying them back at a lower price. Short sellers have become scapegoats for the big declines in the share prices of weakened companies including Lehman Brothers Holdings Inc. and American International Group Inc., though it is unclear whether they were the cause of the declines.

The cause of the decline? So it’s just a coincidence that shorts ganged up on lousy stocks. Funny how they’re not shorting Donaldson (DCI).

Posted by on September 19th, 2008 at 10:56 am


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