SEC is floating options to limit short sales

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Regulators floating options to restrict short-selling amid pressure from companies, lawmakers

Marcy Gordon, AP Business Writer
Wednesday April 8, 2009

WASHINGTON (AP) -- Federal regulators are floating several options for reining in the practice of short-selling stocks, as investors, corporations and lawmakers clamor for restrictions on moves they say gutted vulnerable companies and worsened the market's downward spiral.

Members of the Securities and Exchange Commission are meeting Wednesday to vote on new rules restricting short-selling, in which traders try to profit from a stock's decline by selling borrowed shares. Several proposals are expected to be put forward for public comment.

The agency could settle on one plan and formally approve it sometime after the comment period.

It marks the second time in less than a week that financial relief measures pressed by Congress were taken up by overseers. Last Thursday, the independent Financial Accounting Standards Board gave companies more leeway in valuing assets and reporting losses.

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 often been targeted by short sellers.

The SEC's move is the first major initiative by the agency under Chairman Mary Schapiro, who was appointed by President Barack Obama and assumed the position in January.

Short-selling is legal and widely in use on Wall Street. The practice involves borrowing a company's shares, selling them, then buying them back when the stock falls and returning them to the lender. The short seller pockets the difference in price.

Proponents of short-selling say it can make markets more efficient, bring in more capital and raise warning signs about weak or badly managed companies. But companies and regulators maintain that the practice widened the scope of the financial crisis and contributed to the collapse in value last fall of a number of bank stocks -- as well as the demise of investment bank Lehman Brothers.

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SEC is floating options to limit short sales - Yahoo! Finance