US set to lift short-selling ban

[Naveed Yaseen]

Sunday, October 05, 2008
WASHINGTON: The US Securities and Exchange Commission said on Friday it would lift its temporary order banning short selling of financial shares next Thursday.

The SEC said it took the action after the enactment of a $700 billion financial rescue package aimed at stabilising fragile markets. “The Commission’s emergency order that prohibits persons from selling short the securities of financial institutions will expire at 11:59 pm (eastern time) on Wednesday, October 8, 2008,” the statement said.

On September 19, the SEC said it took the action in concert with its British counterpart, the Financial Services Authority, which announced a wider ban on short sales. The move covered 799 financial institutions and was made “to protect the integrity and quality of the securities market and strengthen investor confidence” amid turmoil on world financial markets. In addition to moves in Britain, Ireland and Switzerland took similar actions.

Short selling occurs when investors sell stock they do not yet own in order to profit later from an anticipated fall in prices, often contributing to the price fall. Some analysts argue that short-selling can be used to manipulate share prices and add to pressure on fragile companies. Others say it is a legitimate tool that helps markets function.

The Managed Funds Association, which represents alternative investment groups, said last month that the “hastily developed rules will not solve the challenges rippling through the financial sector, but they could inflict long-term damage on the markets by reducing liquidity and may well further market instability.”

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