Somewhat unsurprisingly, the U.S. Securities and Exchange Commission decided to extend its ban on short selling of stocks, and rules regarding mandatory disclosure of the short selling lists of hedge funds.
The ban on short selling on financial institutions is now extended to 11:59 p.m. on October 17. The rules for hedge funds was also extended for the same time.
"The Commission notes that short selling plays an important role in the market for a variety of reasons, including contributing to efficient price discovery, mitigating market bubbles, increasing market liquidity, promoting capital formation, facilitating hedging and other risk management activities, and importantly, limiting upward market manipulations," said the SEC in a press release. "In addition, there are circumstances in which short selling can be used as a tool to mislead the market. For example, short selling can be used in a downward manipulation whereby a manipulator sells the shares of a company short and then spreads lies about a company's negative prospects. This harms issuers and investors as well as the integrity of the market."
On September 19, the SEC issued a ban on short selling of most financial stocks in the United States in an effort to stem the downward spiral of financial entities suffering from rapid losses of capital in a dramatic crisis of confidence. Similar measures were undertaken across the globe following the move from U.S. regulators.
By Erik Kevin Franco and edited by Megan Ainscow
©CEP News Ltd. 2008