SEC debates short-selling rules
Published 8:21 pm Wednesday, April 8, 2009
WASHINGTON — Federal regulators opened a public debate Wednesday over ways to restrict trades that bet against a stock, as investors and lawmakers clamor for brakes on moves they say worsened the market’s downturn.
One option the Securities and Exchange Commission advanced is restoring a Depression-era rule that prohibits short sellers from making their trades until a stock ticks at least one penny above its previous trading price. The goal of the so-called uptick rule is to prevent selling sprees that feed upon themselves — actions that battered the stocks of banks and other companies over the last year.
Another approach would ban short-selling for the rest of the trading session in a stock that declines by 10 percent or more.
The five SEC commissioners, who voted unanimously to put forward several alternative short-selling plans, could settle on one and formally approve it sometime after a 60-day public comment period.
SEC Chairman Mary Schapiro said the agency was beginning “a thoughtful, deliberative process to determine what is in the best interests of investors.”
Short-selling is legal and widely used on Wall Street. But as the market has plunged, investors and lawmakers have pressed the SEC to reinstate the uptick rule. They say its absence since mid-2007 fanned market volatility, prompting bands of hedge funds and other investors to target weak companies with an avalanche of short-selling.
The SEC meeting marked the second time in less than a week that financial relief measures pressed by Congress were taken up by independent overseers. The Financial Accounting Standards Board on April 2 gave companies more leeway in valuing assets and reporting losses, a move that sent financial stocks and the broader market soaring.
Both sets of changes would especially benefit banks and other financial institutions, whose balance sheets have been battered in the financial crisis and whose stocks have been targeted by short sellers.
