Archive for April, 2009

SEC to consider restricting short sellers (Reuters)

Wednesday, April 8th, 2009 | Finance News

WASHINGTON (Reuters) –
U.S. securities regulators meet on Wednesday to consider restrictions on short selling, a type of investing blamed by some lawmakers and executives for exacerbating the financial crisis and driving down share prices.

The Securities and Exchange Commission will consider reinstating the "uptick rule," which allowed short sales -- a bet that a stock's price will fall -- only when the last sale price was higher than the previous price.

The rule, first adopted after the 1929 stock market crash, is viewed by some as a way to relieve downward pressure on a stock that is dropping precipitously.

The SEC previously concluded that advances in the marketplace had rendered the rule ineffective and abolished it in summer of 2007.

But with the benchmark Standard & Poor's 500 index (.SPX) down roughly 45 percent since the start of 2008 and the Dow Jones Industrial Average (.DJI) down more than 40 percent over the same period, members of Congress and others are demanding restoration of the rule.

"I am glad that they are doing the responsible thing and addressing it," said Democratic Representative Gary Ackerman from New York, who has introduced a bill in the U.S. House of Representatives to reinstate the uptick rule.

But short sellers argue that their trading helps keep markets liquid and prevents stocks from becoming overvalued. They also criticize last year's temporary ban on short sales of hundreds of financial stocks.

"I am surprised that regulators have not learned from the (short-sale ban) fiasco where it ultimately reduced liquidity in the securities," said Ron Geffner, a partner at law firm Sadis & Goldberg LLP who advises hedge funds.


In a short sale, an investor borrows stock and sells it in the hope that its price will fall. If the price does drop, the seller profits by buying the stock back at the lower price and returning the borrowed shares.

At Wednesday's meeting, the SEC will consider an updated version of the uptick rule, which will apply to all stocks, two sources familiar with the proposal have said.

The original uptick rule only applied to stocks traded on the New York Stock Exchange.

The five SEC commissioners will also consider a bid test, where shorting would only be allowed at a price above the best available bid, the sources said.

They will also weigh three circuit breakers to curb aggressive short selling. Under one proposal, if a stock fell by 10 percent, a circuit breaker would kick in and trigger the application of the 'bid test.' This approach has the support of the largest U.S. exchanges, the New York Stock Exchange, the Nasdaq Stock Market and BATS exchange.

Under a second circuit breaker proposal, short selling in the particular stock would be banned for the rest of the day, the sources said. The third circuit breaker proposal would trigger the application of the updated uptick rule for the rest of the day, the sources said.

The agency will solicit public comment on its proposals and would hold another meeting to decide on final short sale restrictions as part of its normal rulemaking process.

"It makes sense to have a shock absorber that will slow things down just a little when a shock hits the market," said James Angel, a Georgetown University associate professor who specializes in regulation of financial markets.

In September, Wall Street executives and U.S. lawmakers pressured the SEC to limit short selling as financial stocks appeared to free-fall and a loss of investor confidence pushed investment bank Lehman Brothers into bankruptcy.

Amid fear that the global financial system was near collapse, the SEC joined other global regulators in imposing a temporary short sale ban on financial stocks.

Preliminary findings have shown the ban produced unintended consequences such as dislocations in the market, officials have said.

(Reporting by Rachelle Younglai; additional reporting by Jennifer Ablan; Editing by Tim Dobbyn)


Sharp to ramp up output in face of bigger loss (Reuters)

Tuesday, April 7th, 2009 | Finance News

TOKYO (Reuters) –
Japan's Sharp Corp (6753.T), the world's third-largest LCD TV maker, said that it expected to post a much deeper annual loss on sliding LCD prices for the year just ended but that it will speed up panel production.

To cut costs faster and keep ahead of price falls, Sharp, which trails Samsung Electronics Co Ltd (005930.KS) and Sony Corp (6758.T) in LCD TVs, said on Wednesday it would bring forward the start of output at a new LCD panel plant in western Japan by five months to October this year.

Demand is also coming back, Sharp President Mikio Katayama said.

"We will begin the start of production at the Sakai Plant in October to meet healthy demand ahead," he told a news conference.

"Getting the world's most cost-competitive factory onstream as quickly as we can will be a powerful weapon to win in this tough climate."

Sharp's 380 billion yen ($3.79 billion) plant in western Japan will process so-called 10th-generation glass substrates, which are bigger than earlier-generation substrates and help reduce per-panel production costs.

Its share price, which had fallen as much as 7.7 percent prior to the announcement, closed down 6.1 percent at 813 yen, against the Nikkei's (.N225) 2.7 percent fall.

Consumer interest in electronic gadgets has slumped as a global recession hits employment and income, pushing the world's top makers of liquid crystal displays into the red.

Mounting inventory from unsold LCD panels and TVs, as well as restructuring costs, dragged down Sharp's earnings outlook.

The company now expects an operating loss of 60 billion yen. That is far larger than its estimate in February of a loss of 30 billion yen and compares with a consensus of a 37.3 billion yen loss in a poll of 21 analysts by Reuters Estimates.

It would be Sharp's first ever operating loss.


Sharp is ramping up production in the face of uncertain demand, analysts said.

Utilization rates in the LCD panel sector are recovering, but they are still at only 70 percent to 80 percent, analyst Yuji Fujimori wrote in a note to investors on Tuesday, when he downgraded the stock to "sell" from "neutral."

"This leaves concerns about the market's capacity to absorb supply increases," he wrote.

Sharp said in 2007 that its new LCD plant would have an initial capacity to handle 36,000 glass substrates a month, which will eventually be doubled to 72,000 units.

Sharp, which supplies panels to makers of LCD TVs, is also considering working with an overseas partner in LCD panels, Katayama said.

The Nikkei business daily said in February that Sharp was in talks with Chinese rival SVA on joint LCD production in China.

Sharp is also building a new solar cell plant in Japan. The company said in 2007 the new plant, which is designed to make thin-film solar cells, is scheduled to start output by March 2010.

It is the world's fourth-largest solar cell maker behind Q-Cells (QCEG.DE), First Solar Inc (FSLR.O) and Suntech Power Holdings (STP.N) in 2008, according to PVNews industry news letter.

(Additional reporting by Mayumi Negishi; Editing by Hugh Lawson)


AIG aircraft unit seeks $5 billion Fed credit line: report (Reuters)

Tuesday, April 7th, 2009 | Finance News

(Reuters) –
American International Group Inc's aircraft leasing unit is in talks over a $5 billion credit line from the New York Federal Reserve that could be used to facilitate its sale, the Financial Times reported on its website late on Tuesday.

People close to the situation told the paper that discussions between International Lease Finance Corp (ILFC), AIG and the New York Fed were still ongoing and no decision had yet been taken on whether the facility would be provided or how big it would be.

The credit line from the Fed would come from the billions of dollars worth of loans the monetary authorities have already extended to troubled insurer AIG, the paper said, citing people close to the situation.

Reuters' efforts to contact the New York Fed and AIG out of regular office hours were unsuccessful.

ILFC, one of the world's largest aircraft leasing companies, is one of the units AIG has put on the auction block. Private equity firms are eyeing the firm, and a buyer could get financing help from AIG under revisions to AIG's U.S. financial rescue in March.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Muralikumar Anantharaman)