October 2, 2008
SEC Extends Ban on Short-Selling
The SEC issued the following statement extending its ban on short selling in stocks of financial institutions:
The Commission has taken steps during recent weeks to address concerns regarding short sales in light of the ongoing credit crisis. These efforts relating to short sales have focused particularly on the securities of financial institutions whose health may have an impact on financial stability. The steps the Commission has taken are designed to ensure the continued smooth operation of orderly markets. Our actions have been taken in consultation with regulators of the major developed securities markets around the world, with whom we have coordinated in monitoring market reactions.
The Commission notes that short selling plays an important role in the market for a variety of reasons, including contributing to efficient price discovery, mitigating market bubbles, increasing market liquidity, promoting capital formation, facilitating hedging and other risk management activities, and importantly, limiting upward market manipulations. In addition, there are circumstances in which short selling can be used as a tool to mislead the market. For example, short selling can be used in a downward manipulation whereby a manipulator sells the shares of a company short and then spreads lies about a company's negative prospects. This harms issuers and investors as well as the integrity of the market. This kind of manipulative activity is particularly problematic in the midst of a loss in market confidence. For example, in the context of a credit crisis where financial institutions face liquidity challenges, but are otherwise solvent, a decrease in their share price induced by short selling may lead to further credit tightening for these entities, possibly resulting in loss of confidence in these institutions.
The Commission has recently used its emergency authority to minimize the possibility of abusive short selling as the Congress works to provide a comprehensive plan to stabilize credit markets and the financial system. Under this authority, the Commission's actions are limited to up to 30 calendar days, and may not be extended. To provide clarity about the future expiration of these actions, the Commission is announcing that each of the emergency orders issued on Sept. 17 and Sept. 18, 2008, will be extended to allow time for completion of work on the anticipated passage of legislation.
See also: ORDER EXTENDING EMERGENCY ORDER PURSUANT TO SECTION 12(k)(2) OF THE SECURITIES EXCHANGE ACT OF 1934 TAKING TEMPORARY ACTION TO RESPOND TO MARKET DEVELOPMENTS
Pursuant to Section 12(k)(2) of the Securities Exchange
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