The Securities and Exchange Commission said the ban on so-called "naked" short selling will be in effect until 11:59 p.m. EDT on Aug. 12 and will not be extended.
Short sellers make a bet that a stock's price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.
"Naked" short selling occurs when sellers don't even borrow the shares before selling them, and then look to cover positions immediately after the sale. The SEC order requires short sellers to actually borrow shares before selling them.
SEC Chairman Christopher Cox said the order was also helping prevent potential "distort and short" manipulation of stocks, which occurs when rumors and misinformation are used to drive down the price of a stock that has been sold short.
"In addition to continuing the existing order against naked short selling, the commission will continue exploring other remedies for the broader marketplace to further protect investors from 'distort and short' artists," Cox said in a statement.
The SEC said that extending the restrictions on short selling will allow regulators more time to collect and analyze data on the order's impact and effectiveness.
After ban runs out, regulators will move to draw up formal rules to provide additional protections against abusive naked short selling in the broader market, while allowing legitimate short selling, the SEC said.
Advocates for smaller banks and investment firms have been urging the SEC to expand the ban on naked short selling to cover additional financial companies.
Analysts and government regulators blamed aggressive short selling for exacerbating the recent plunge in Fannie Mae and Freddie Mac's stock, as well as that of big investment house Lehman Brothers Holdings Inc.
The SEC initially announced the emergency order on July 15 after a perilous slide in shares of Fannie and Freddie, the government-sponsored companies that together hold or guarantee more than $5 trillion in home mortgages — nearly half the U.S. total.
The regulators' move followed a 13 percent drop in the price of Fannie shares and a 22 percent plunge in Freddie's on July 10, when a news report said the government had begun contingency planning in the event the companies failed. The next day, Freddie shares plummeted 33 percent at one point and Fannie stock lost 29 percent of its value.
As the rout in oil prices nears the
20 percent mark that for stocks would signal a bear market,
many analysts offer a word of caution -- don't mistake a
healthy correction for the end of a multi-year bull trend.
The 16 percent slump since its record-high close of $145.18
a barrel on July 14 could yet deepen to $100 a barrel, many
analysts say, but equally many remain convinced that another
surge to as-yet unconquered peaks may lie just months ahead.
"Maybe in financial markets 20 percent means the trend has
changed, but in the case of commodities we are not really
looking at it like that, commodities are based more on
fundamentals," said Tetsu Emori, a fund manager at Astmax Co
Ltd in Tokyo who regularly analyses charts for price direction.
The U.S. Dow Jones industrial average (.DJI) entered bear
market territory -- marked by a 20 percent fall from a closing
peak -- in late June, but similar setbacks in commodity markets
have proven less prescient.
Those who might have mistaken oil's last deep fall -- a
near 21 percent decline over four weeks to mid-January 2007 --
for a sustained pull-back paid dearly. Prices hit a low of
$49.90 a barrel before nearly trebling over the next 18 months.
Dealers who trade on the basis of technical indicators are
looking at more crucial figures, such as the 100-day moving
average. Prices fell below that level on Tuesday for the first
time since early February, hinting at more to come.
"The 20 percent retracement being an indicator of a bear
market doesn't have quite the impact as pushing through the
100-day moving average at $122. That's what analysts and
traders were really looking at," said Jonathan Kornafel, Asia
director at U.S.-based options trader Hudson Capital Energy.
For Emori, a break below $117 to $119 could trigger a slide
to around $100, but "even if that happens I don't think it will
mean that the long-term bull trend will be finished."
Bullish long-term structural issues such as growing Asian
demand and lackluster non-OPEC supply growth remain unresolved,
market bulls argue, suggesting the market may have yet to see
the highs, regardless of indicators on candlestick charts.
"We've seen a spectacular rise, so 20 percent is not a bear
market at all," said Mark Pervan, commodities analyst at ANZ
Bank. "This is really steam coming out of the market."
"We can't realistically expect it to remain around these
levels with new demand coming into the market."
Crude oil is no stranger to some deep corrections during a
six-year price boom that has lifted U.S. crude from around $20
a barrel at the start of 2002.
In early 2003, before the rally even hit its stride, prices
collapsed from a pre-Iraq war peak of nearly $40 to below $25 a
barrel. They hit the skids again in mid-2006, falling from a
high above $78 to a January low of $49.90.
The market didn't make a new record high until August 1,
just over 12 months after the previous peak.
While the market will almost certainly need a breather
before attempting to scale $150 again, the increasing pace at
which prices are rising and falling may suggest that the wait
won't be as long as in the past.
"Hedge fund longs have now reversed their positions and are
trading the market from the short side," said Kornafel.
"I wouldn't be surprised to see some recent profits booked
and as potential hurricanes loom in the U.S. Gulf there could
be a mad rush for the exit, pushing the market right back up
(Editing by Michael Urquhart)
GMAC and Ford Motor Credit disclosed
steps on Tuesday to cut back on auto leases in a move that
leaves automakers facing the risk of even more pressure on auto
sales already at decade lows.
The steps by GMAC and Ford Motor Credit stopped short of
Chrysler Financial's wholesale abandonment of lease financing
that shocked the struggling carmaker's dealers on Friday.
Analysts said the steps could protect the balance sheets of
the auto finance companies, but cautioned the new financial
constraints could make a tough market even harder for the
"The pullback could provide another negative for U.S. auto
sales this year," Deutsche Bank said in a note for clients.
GMAC confirmed it would no longer offer leasing incentives
on vehicles sold in Canada.
Detroit-based GMAC, which ranks as the largest auto finance
company in North America, would not comment on any steps it
planned for the larger U.S. market just ahead of the crucial
month-end close for July sales and its quarterly financial
report on Thursday.
One dealer briefed by GMAC and Ford Motor Credit said the
finance companies were taking steps to reduce the risk from
losses on lease deals.
Ford Motor Credit said it adjusted its assumptions in
pricing leases and would continue to offer them as an
'THROUGH THICK AND THIN'?
U.S. automakers and their financing companies have been
losing money on leases because of the sharp decline in the
resale values of trucks and SUVs in the face of record high gas
Ford took a charge of about $1.8 billion in the second
quarter for the lower resale values of trucks and SUVs coming
off leases after terms that typically run three years.
Earl Hesterberg, chief executive of Group 1 Automotive
(GPI.N), a major Ford retailer, said he was reassured that Ford
Credit would support sales, even as it tightened lease terms.
"They're going to do some things to reduce their percentage
of leasing, but I think Ford has understood more than anyone
through thick and thin that there's a leasing market there for
certain types of vehicles," Hesterberg told Reuters.
Automakers have used vehicle leasing as a way to clear
inventory by enticing consumers with lower monthly payments.
But the arrangement hinges on the leasing company being able to
sell vehicles for near their forecast residual value when the
contracts are up.
Because of the sudden premium on more fuel-efficient cars,
resale values for light trucks have dropped by as much as 30
percent or more over the last year.
"Credit is tightening, so (auto financing companies) are
not as flexible as before," said Raymond Ciccolo, president of
Boston-based Village Automotive, a dealership group that sells
GM brands Cadillac, Hummer and Saab. "It doesn't make sense to
offer leases on the current terms."
Both GMAC and Chrysler Financial are now controlled by
private-equity firm Cerberus Capital Management.
Cerberus bought 51 percent of GMAC from GM in 2006 and
acquired the Chrysler finance arm when it bought the U.S.
automaker from Daimler AG (
Chrysler Financial's announcement that it would suspend
lease financing altogether prompted some analysts to question
whether the struggling carmaker would lose more ground.
Fitch Ratings warned that Chrysler might not be able to
maintain competitive incentive financing and cut the
automaker's ratings to "CCC" on Tuesday, saying the cut-off
could depress already sluggish sales.
"The big difference is that GMAC and Chrysler Financial are
no longer controlled by the auto manufacturers themselves,"
said Hesterberg. "The reason the captive credit companies were
created was to support sales in these tough times."
U.S. auto sales dropped 10 percent in the first half.
Chrysler sales were down 22 percent, GM dropped 16 percent and
Ford was off 14 percent.
(Additional reporting by Soyoung Kim, Poornima Gupta and
David Bailey; Editing by Andre Grenon)