U.S. securities regulators plan to
take action on abusive short selling of stock before the end of
the week, a source briefed on the matter said on Monday.
The measures came as Lehman Brothers Holdings Inc (LEH.N)
filed for bankruptcy protection, intensifying concerns that
other major financial stocks would accelerate their losses.
The Securities and Exchange Commission will likely adopt
proposals to strengthen its short-selling rule, including one
that deems it fraudulent for customers to deceive
broker-dealers about their intention or ability to deliver
securities in time for settlement.
The SEC will also move forward with a plan that would
shorten the time in which traders must buy back stock if they
fail to deliver a security by the settlement date.
But the SEC will not reinstate and broaden a temporary
emergency rule that required traders to preborrow stock before
executing a short sale.
Two months ago, regulators were faced with similar market
turmoil when IndyMac bank was seized by regulators and
investors were concerned that Lehman and mortgage finance
giants Fannie Mae (FNM.N) and Freddie Mac (FRE.N) were veering
towards insolvency.
At the time, the SEC announced plans to crack down on
rumor-mongering and issued an emergency rule aimed at curbing
illegal naked short selling in 19 major finance stocks,
including Lehman, Freddie and Fannie.
A "naked" short sale occurs when an investor sells stock
that has not yet been borrowed.
Broker-dealers will sometimes accidentally fail to deliver
stock to investors who have arranged to borrow it. If this is
done intentionally, it is illegal.
That rule proved to be controversial, however.
Broker-dealers said the requirement was onerous, companies
whose stock was not on the SEC's list wanted the same
protections, and short sellers complained about being targeted.
When the emergency order ended in mid-August, the SEC set
about crafting rules -- which it had been expected to adopt
late in September -- to be applied to all stocks.
Mortgage giants Fannie and Freddie have since been taken
over by the government. Lehman has been forced to file for
bankruptcy after failing to find a buyer.
(Editing by Quentin Bryar)
Related posts: