SEC calls global securities confab to discuss short selling
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Short sellers, beware: It looks like the regulatory posse is gunning for you, again.
From the Associated Press:
Securities and Exchange Commission Chairman Christopher Cox has convened a meeting of international regulators for next week to deal with ‘urgent regulatory issues’ stemming from the global financial crisis. Cox called for a committee of the International Organization of Securities Commissions to discuss topics including regulations on short selling and derivatives, which have come under fire as world markets buckle under the ongoing credit crunch. The Madrid, Spain-based organization describes itself as the international standard-setter for securities markets. The meeting will be held via teleconference on Monday, the SEC said. ‘In addressing turbulent market conditions, it is essential not only that regulators act against securities law violations, including abusive short selling, but also that there be close coordination among international markets to avoid regulatory gaps and unintended consequences,’ Cox said in a statement. Cox said the meeting will allow regulators to review recent international steps including those taken to curtail abuses by short sellers, and coordinate future policies so that they are ‘effective and mutually reinforcing.’
With financial stocks in another meltdown this week, Citigroup Inc. reportedly has been pressing the SEC to reinstate a ban on shorting its stock and others in the sector.
Short sellers borrow stock and sell it, betting the price will plunge. If the bet is correct, they can buy new shares later at a lower price to repay the loaned shares, and pocket the difference between the sale price and the repurchase price.
The shorts are routinely accused of spreading dire rumors about companies to help drive shares lower.
The SEC outlawed shorting of more than 800 financial stocks from Sept. 19 to Oct. 8, in a bid to stop ‘sudden and excessive fluctuations’ in the shares.
Many of the stocks fell anyway in that period, and the SEC’s move was roundly criticized as boneheaded and just another form of market manipulation.