SEC

US temporarily bans short selling of stocks

The US Securities and Exchange Commission on Friday temporarily banned short selling of shares in certain companies in emergency action aimed at boosting investor confidence amid financial turmoil.

The SEC said it took the action in concert with its British counterpart, the Financial Services Authority, which announced similar action on Thursday.

The move covers 799 financial institutions and was made "to protect the integrity and quality of the securities market and strengthen investor confidence" amid turmoil on world financial markets.

The ban on short selling is due to end on October 2 but could be extended by up to 30 days, the SEC said.

In addition to moves in Britain, Ireland and Switzerland took similar actions on Friday.

"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," he said.

Short selling occurs when investors sell stock they do not yet own in order to profit later from an anticipated fall in prices -- often contributing to the price fall.

"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," Cox said.

US Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke met with Congressional leaders late Thursday in an effort to hammer out a plan to rid financial institutions of bad assets at the root of the current credit crisis.

US media reports said the finance officials and lawmakers were considering a bailout by taxpayers like that used in the savings and loan crisis of the 1980s and 90s.

The SEC also announced temporary measures that require some institutional money managers to publicly report their new short sales in certain securities, and ease restrictions on the issuers of stocks to repurchase their securities in a bid to help restore market liquidity.

(Published by AFP - September 19, 2008)