SEC Halts Short Selling on Financial Stocks

SEC suspends practice blamed for downward market pressure

By Clay Dillow, Newser Staff

Posted Sep 19, 2008 6:56 AM CDT

(Newser) – The SEC temporarily banned short-selling of 799 financial companies today, an “emergency action" aimed at slowing sliding stock prices that have rattled investors’ confidence in recent weeks, CNNMoney reports. The practice, in which in investors borrow stock and sell it, hoping to buy it back cheaper and pocket the difference when the price declines, is thought to be partially responsible for recent worldwide market declines.

The ban, effective immediately, comes on the heels of Wednesday's prohibition on “naked” short selling, in which sellers never actually own the stocks they short. The SEC will also temporarily ease rules on firms’ ability to buy back their own stock and force institutional investors to report any short positions in certain stocks not covered by the new ban.

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Securities and Exchange Commission (SEC) Chairman Christopher Cox announced an immediate temporary ban on the short selling of 799 financial companies Friday. (AP Photo/Haraz N. Ghanbari)

Specialist Gerard Petti, left, works with trader Edward Baumann on the floor of the New York Stock Exchange, Thursday Sept. 18, 2008. (AP Photo/Richard Drew)

Traders crowd the post that handles Morgan Stanley on the floor of the New York Stock Exchange near the close of trading, Wednesday Sept. 17, 2008. (AP Photo/Richard Drew)

Trader Tom Kalikas, center, works on the floor of the New York Stock Exchange near the close of trading, Wednesday Sept. 17, 2008. (AP Photo/Richard Drew)

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The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets. - Christopher Cox, SEC Chairman

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SEC Halts Short Selling on Financial Stocks