The US Securities and Exchange Commission has extended the order first issued on July 15 barring so-called naked short-selling in the securities of financial institutions to which the Fede
The US Securities and Exchange Commission has extended the order first issued on July 15 barring so-called naked short-selling in the securities of financial institutions to which the Federal Reserve has granted temporary access to liquidity facilities on an emergency basis. The extended order will expire a minute before midnight East Coast time on August 12, and will not be extended further.
According to the SEC, its decision to extend the order for a second 10-day period will not only continue to protect the financial institutions in question from what it regards as an abusive practice but allow its staff to collect and analyse additional data on the impact and effect of the order’s provisions.
Following expiration of the extended order, the commission says, it will immediately move to draw up new permanent rules that would become effective after public notice and comment. Its aim is to provide additional protection against abusive naked short-selling in the broader market, while continuing to permit legitimate short-selling that the SEC acknowledges is essential to efficient and liquid markets.
The order requires short-sellers of the securities of the designated institutions to arrange to borrow the securities at the time of sale so that the buyers will receive the stock they purchased on time. Naked short-selling consists of selling stock the vendor does not own without borrowing the stock to be sold, and failing to deliver it.
‘The order is designed to protect legitimate short-selling in these securities, but helps prevent illegitimate naked short selling and potential ‘distort and short’ manipulation,’ says SEC chairman Christopher Cox.
‘In addition to continuing the existing order against naked short-selling, the commission will continue exploring other remedies for the broader marketplace to protect investors further from ‘distort and short’ artists.’
The commission’s order was issued under its emergency authority provided in Section 12(k)(2) of the Securities Exchange Act of 1934, which limits emergency orders to 10 business days. The total duration of the original order plus extensions may not exceed 30 calendar days from the date of the original order.
