Friday, 3 April 2009

SEC Said to Be Mulling Short-Selling Curbs, According to Bloomberg Report

This is the text of a story by Bloomberg News about possible curbs on short-selling. Many people in the markets reject the idea, for short-sellers can be critical to efficient liquidity allocation and somehow as easy operation of energy, commodity, currency and derivative markets.
The U.S. Securities and Exchange Commission is considering dictating when traders can bet that stocks will fall, after lawmakers said short-sellers fueled the financial crisis by driving down shares, according to two people familiar with the matter. The SEC may offer two proposals April 8 that would place more stringent limits on bearish bets than a plan backed by four U.S. stock exchanges, according to the people, who declined to be identified because the proposals remain under discussion at the agency. Since taking over in January, SEC Chairman Mary Schapiro has faced pressure from Congress to reinstate the so- called uptick rule, which required traders to wait for a price increase before executing short sales. (Click here for a link to the Bloomberg story. )
The imposition of a temporary ban on short sales in September fuelled a witch hunt on hedge funds. Apart from the igniting remarks of politicians, victims of market drops and even the Church, which has fueled more confusion and anger over the role of financial speculators on the financial system, we have seen little debate over the role of hedge funds in general, the importance and excesses of short-selling and whether the latter two are beneficial to the health of the financial markets. One investor, Fernando Meibak of Sunrise Investments in São Paulo, told this blog back in December that, for the case of bank shares around the world, the current framework that makes banks over reliant on wholesale funding and vulnerable to a downturn in investor confidence, makes financial stocks a target of short-sellers. One thing is, he said, that short-sellers manipulate the markets for profit reasons, and another is the role that short-selling plays on the correct functioning of market pricing. Market abuse is already illegal and should be punished -- not the activity of shorting per se. Short-selling is an important part of financial markets these days. It isn't an exclusive activity of hedge fund managers.