The head of the Chicago Board Options Exchange (CBOE) is publicly criticizing the emergency ban on short-selling announced by the Securities and Exchange Commission on Friday.
CBOE Chairman and CEO William J. Brodsky called the SEC's measure "draconian measure that will result in the sudden and severe removal of liquidity from the marketplace at the same time that the government is taking unprecedented steps to preserve it."
CBOE, the largest U.S. options marketplace and the creator of listed options, is regulated by the SEC.
Brodsky added that the SEC's temporary ban on the short-selling of 799 financial stocks will cause liquidity in the affected stocks to suffer and hamper market makers.
"The lack of relief for options market makers will have serious ramifications for the reliability of the options market and for the efficiency of our capital markets overall," Brodksy said in a statement. "We are especially concerned with the collateral damage to our customers, which, while unintended, will be no less serious."
The short-selling ban is in place until 11:59 p.m. EDT on Oct. 2, but can be extended 10 days or beyond if deemed necessary, and was enacted in order to "restore equilibrium to markets," the SEC said in a statement on Friday.
Also on Friday, Options Clearing Corporation CEO Wayne Luthringshausen said the move will have "dire" consequences for U.S. equity markets.
"As written, this order does not allow for an options market maker exemption to ensure liquid and orderly markets starting on Monday. This will have dire consequences on the U.S. equities markets," he said in a statement.
By Stephen Huebl
©CEP News Ltd. 2008