The Securities and Exchange Commission has issued an emergency order that it says is designed to enhance investor protection against so-called ‘naked’ short selling in the securities of mo
The Securities and Exchange Commission has issued an emergency order that it says is designed to enhance investor protection against so-called ‘naked’ short selling in the securities of mortgage giants Fannie Mae and Freddie Mac and in a list of primary dealers at commercial and investment banks.
The SEC’s emergency order, which will take effect from Monday, July 21 and initially will be valid for nine days, will require that anyone carrying out a short sale in the designated securities must arrange to borrow the securities beforehand and deliver them at settlement. In addition, the SEC says it will set out new rules to address the issue of naked shorting across the entire market.
‘The SEC’s mission to protect investors, maintain orderly markets, and promote capital formation is more important now than it has ever been,’ says chairman Christopher Cox.
‘Today’s action aims to stop unlawful manipulation through naked short selling that threatens the stability of financial institutions. We will continue our vigorous commitment to investors by working within the SEC and in close co-operation with our regulatory counterparts to promote the continued health and vibrancy of our markets.’
The emergency order, made under the SEC’s authority under Section 12(k)(2) of the Securities Exchange Act of 1934, will take effect at 12.01 a.m. ET on July 21 and expire at 11.59 p.m. on July 29.
The commission may extend the order to continue it in effect if it decides that this is necessary in the public interest and for the protection of investors, for up to a maximum of 30 days.
The firms designated in the order that will benefit from the ban on naked shorting are BNP Paribas Securities, Bank of America, Barclays, Citigroup, Credit Suisse, Daiwa Securities, Deutsche Bank, Allianz, Goldman Sachs, Royal Bank of Scotland, HSBC, J.P. Morgan Chase, Lehman Brothers, Merrill Lynch, Mizuho Financial, Morgan Stanley and UBS, as well as Freddie Mac and Fannie Mae.
Meanwhile, the SEC is reported to have issued subpoenas to more than 50 hedge fund managers as part of an investigation into allegations that market participants have spread false rumours in order to depress the share prices of certain financial institutions artificially.
The subpoenas are said by the Wall Street Journal to relate specifically to Bear Stearns and Lehman Brothers. Following a collapse of confidence in Bear Stearns in March, the venerable New York investment bank was forced to sell itself hastily and cheaply to JP Morgan.
The newspaper says Citadel Investment Group and SAC Capital Advisors are among the managers to have received subpoenas, which reportedly relate to trading in the stocks of the two institutions and well as communications with other market participants. However, the managers concerned are not necessarily under suspicion of market manipulation.
