In an effort to aggressively counter the recent market crisis, the United States Securities & Exchange Commission and United Kingdom's Financial Services Authority announced today that they have temporarily banned all short-selling in financial companies. The SEC, in a press release posted on its webpage, says that the move is designed to "protect the integrity and quality of the securities market and strengthen investor confidence." The announcement comes just one day after New York Attorney General Andrew Cuomo announced an investigation into whether short sellers spread false rumors about Lehman Brothers Holdings Inc., American International Group Inc. and other financial companies to lower their stock prices.
According to SEC Chairman Christopher Cox, "The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets. The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets. 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."
The ban will apply to 799 financial companies and is effective immediately. It expires on October 2, 2008, but the SEC may choose to extend the ban for an additional 20 days if necessary for the protection of investors and the public interest. A copy of the SEC's order is available here. Although this ban applies only to these financial companies, the scope of the ban is much broader than the previous restriction by the SEC on naked short selling which expired.
The SEC also issued two additional orders this morning; one requiring institutional money managers to report new short sales of certain publicly traded securities (a copy of that order is available here) and the other making it easier for issuers of securities to buy back their own stock (a copy of that order is available here).