Legal News

SEC Puts Temporary Ban on "Short Selling"

The Securities and Exchange Commission (SEC) on Friday issued an order temporarily banning the "short selling" of the securities of almost 800 financial companies, in an effort to protect the stock market and boost investor confidence.

Investors profit from "short selling" by 1) obtaining potentially overvalued stock on loan from an investment firm, 2) quickly selling the stock, 3) buying the stock back when the price goes down, and 4) pocketing the difference before returning the stock to the lending firm. The SEC announcement of the temporary ban came on Friday, with the agency deeming the action necessary "to protect the integrity and quality of the securities market and strengthen investor confidence." The SEC Order is effective immediately, and applies to the purchase of securities in 799 designated companies. Over the weekend, the agency issued an amendment to the order, requiring the reporting of certain short sales.

• SEC News Release on Halt to Short Selling
• SEC Order Temporarily Banning Short Selling [PDF file]
• SEC News Release on Amendment to Order
• Reuters: U.S. Joins Worldwide Crackdown on Short Sellers
• Wall Street Journal: Short-Sale Ban Spreads Around the Globe
• Forbes: Short-Selling is Not Market Abuse
• Time Magazine: A Brief History of Short Selling
• Investing - General Tips (FindLaw)
• Securities and the Law (FindLaw)

Full post as published by FindLaw's Common Law on September 22, 2008 (boomark / email).