United States securities regulators planned to take action on abusive short selling of stock before the end of the week, a source said yesterday.
The Securities and Exchange Commission will likely adopt proposals to strengthen its short-selling rule, including one that deems it fraudulent for customers to deceive broker-dealers about their intention or ability to deliver securities in time for settlement.
The SEC will also move forward with a plan that would shorten the time in which traders must buy back stock if they fail to deliver a security by the settlement date.
But the SEC will not reinstate and broaden a temporary emergency rule that requires traders to pre-borrow stock before executing a short sale.
Two months ago, regulators were faced with similar market turmoil when IndyMac Bank was seized by regulators and investors were concerned that Lehman Brothers Holdings and mortgage finance giants Fannie Mae and Freddie Mac were veering towards insolvency.
At the time, the SEC announced plans to crack down on rumour-mongering and issued an emergency rule aimed at curbing illegal naked short selling in 19 major finance stocks, including Lehman, Freddie Mac and Fannie Mae.
That rule proved to be controversial. Broker-dealers said the requirement was onerous, firms whose stock was not on the SEC’s list wanted the same protections and short sellers complained about being targeted.
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SEC to act on short selling abuses
Reuters in Washington
Sep 16, 2008
United States securities regulators planned to take action on abusive short selling of stock before the end of the week, a source said yesterday.
The Securities and Exchange Commission will likely adopt proposals to strengthen its short-selling rule, including one that deems it fraudulent for customers to deceive broker-dealers about their intention or ability to deliver securities in time for settlement.
The SEC will also move forward with a plan that would shorten the time in which traders must buy back stock if they fail to deliver a security by the settlement date.
But the SEC will not reinstate and broaden a temporary emergency rule that requires traders to pre-borrow stock before executing a short sale.
Two months ago, regulators were faced with similar market turmoil when IndyMac Bank was seized by regulators and investors were concerned that Lehman Brothers Holdings and mortgage finance giants Fannie Mae and Freddie Mac were veering towards insolvency.
At the time, the SEC announced plans to crack down on rumour-mongering and issued an emergency rule aimed at curbing illegal naked short selling in 19 major finance stocks, including Lehman, Freddie Mac and Fannie Mae.
That rule proved to be controversial. Broker-dealers said the requirement was onerous, firms whose stock was not on the SEC’s list wanted the same protections and short sellers complained about being targeted.
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