Friday, July 18, 2008

Modifications on short sale rules?

WASHINGTON (Dow Jones)--An emergency order issued by the Securities and Exchange Commission affecting short sales in 19 stocks, slated to take effect Monday, could be modified to exclude market makers in those stocks.

The SEC staff is recommending exceptions for market makers in the shares to avoid constraining liquidity. SEC spokesman John Nester said the proposed change would exempt market makers in the 19 stocks and their derivatives from needing to borrow shares in advance of short sales "in their market-making and related hedging activities" in the stocks....

The American Bankers Association, a leading banking group raised other concerns Thursday, and urged the SEC to expand the order to include publicly traded commercial banks. At present, just two, Bank of America Corp. (BAC) and Citigroup Inc. (C), are on the list.

In a letter to Cox late Thursday, ABA President and Chief Executive Edward Yingling said the group's members worry that naked short-sellers will focus on banks not covered by the order, further driving down their stock prices.

"The emergency order could further exacerbate a loss of confidence in the safety and soundness of this country's banking industry," warned Yingling. He said to avoid that, the SEC should expand the order to add shares in publicly traded commercial banks and bank holding companies.

I wouldn't be surprised to see this broadened.

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