SEC extends short sale ban to give Congress time
U.S. securities regulators on Wednesday extended an emergency ban on short selling in more than 950 financial stocks to give Congress time to finish legislation to rescue the financial system.
The Securities and Exchange Commission said the ban would expire three business days after a $700 billion federal bailout bill was enacted, but would not last beyond October 17.
The SEC emergency rules are part of a series of government measures designed to restore confidence in battered markets and the ailing financial system, which has been rocked by bank failures and fears of economic recession.
Congress is currently trying to hash out a plan to allow the Treasury Department to buy distressed assets from financial firms — a move designed to thaw frozen credit markets. The first bailout bill failed, triggering a massive sell-off in markets around the world. The U.S. Senate was expected to vote on a new bill later on Wednesday.
The SEC rules, issued on September 19, include one that requires big money managers to publicly disclose their short positions cash advance. That temporary order will expire on October 17, but the SEC said it intends to make that rule permanent.
In a nod to the $2 trillion hedge fund industry, the SEC said the short positions will not be made public for the duration of the emergency rule. It is not clear, however, whether the information will be kept secret under a permanent rule.
The short sale ban has been deeply unpopular with the hedge fund community, which says it has not prevented price declines of financial institutions, volatility in the securities of these firms, or the failure of a financial institution.
Hedge funds have been pleading with the SEC to let the ban expire and keep their short positions private. The funds — which often use short selling strategies, selling borrowed stock in anticipation the price will fall — said publicly disclosing their positions would be disastrous to their business.
Filed under: business by Finance Boss