ABA Wants SEC to Apply Rule to All Banks

by Joseph McCafferty

An emergency measure undertaken by U.S. securities regulators last week aimed at curbing manipulative short-selling in some major financial firms should be expanded to all publicly traded banks, or it could erode confidence in the banking industry.

 

Writing in a letter to the Securities and Exchange Commission last week, the American Bankers Association stressed that banks could be particularly vulnerable because of market turmoil ascribed to the downturn in the U.S housing market. "The emergency order could further exacerbate a loss of confidence in the safety and soundness of this country's banking industry," ABA President Ed Yingling wrote.

 

SEC Chairman Christopher Cox, in an op-ed piece published in Friday's Investor's Business Daily noted that while naked short selling is not illegal the abusive practice of naked short selling is far different from ordinary short selling, which is a healthy and necessary part of a free market.

 

The SEC early last week took the highly unusual step of putting restrictions on traders who sell short shares of financial stocks.

 

The steps, issued through an "emergency order," limit short trading in 19 financial services companies, including Citigroup, Bank of America, Lehman Brothers, and Freddie Mac and Fannie Mae. The SEC will require that traders borrow shares they wish to sell short before they actually trade them, eliminating the possibility of naked short selling, when traders sell shares but do not produce them by the transaction closing date. It is this order that the ABA wants applied to all publicly traded banks.