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SEC bans short-selling of 799 financial stocks

  Securities  -   POSTED: 2008/09/19 19:03

The federal government, trying to boost investor confidence in the face of a market crisis, took the unprecedented step Friday of temporarily banning a practice of betting against financial stocks.

The move by the Securities and Exchange Commission will temporarily ban what is called short selling of 799 financial stocks. The rule took effect immediately Friday and extends through 11:59 p.m. EDT on Oct. 2.

Short selling involves borrowing a company's shares, selling them, and pocketing the difference when the stock falls. It is a legitimate method of trading -- it can make markets more efficient and bring in more capital -- but the government argues that it has widened the scope of the recent financial crisis and contributed to the collapsing values of investment and commercial bank stocks in particular.

The SEC also eased restrictions on the ability of companies to buy back their own shares, also through Oct. 2, a move aimed at helping restore liquidity to the distressed and volatile market.

The turmoil has swallowed some of the most storied names on Wall Street. Three of its five major investment banks -- Bear Stearns, Lehman Brothers and Merrill Lynch -- have either gone out of business or been driven into the arms of another bank.

In its announcement, the SEC said it was acting in concert with the U.K. Financial Services Authority, which announced a similar ban there Thursday. Some British politicians claim short-selling was partly responsible for HBOS PLC's abrupt takeover by banking rival Lloyds TSB PLC on Thursday.

The SEC said it hoped its move would protect the integrity of the securities markets and boost investor confidence. The agency said it wanted a time out on aggressive, "unbridled" short-selling in financial stocks, and said it would consider measures to address short-selling in other publicly traded companies.


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