SEC Extends Short Selling Ban

The Securities and Exchange Commission announced yesterday that its three-week ban on the short selling of more than 950 finance-related stocks would be extended until the $700 billion bailout bill is passed. The SEC statement said that the ban will continue up to three days after the bailout is enacted, but through no date later than October 17.

Amid the current market turmoil, short selling has been a major concern of the SEC, with chairman Chris Cox blaming its abuses for fueling the downturn. The original ban, which was enacted on September 19, and was to expire today, initially covered 799 financial stocks, but was extended to cover nearly 1,000, including many public companies only peripherally connected with the finance industry.

In the SEC’s initial announcement three weeks ago, Cox described the measure as an emergency stop gap: “The emergency order…will restore equilibrium to markets. This action, which would not be necessary in a well-functioning market, is temporary in nature and part of the comprehensive set of steps being taken by the Federal Reserve, the Treasury, and the Congress.”

Short selling is the trading practice of borrowing a security and then selling it, in the hopes that a decline in its value will allow later repurchase at a profit. The practice, while both legal and a long-standing feature of the modern market, may have contributed to the credit crisis, as short selling investors made increasing profits off of plummeting share values, in turn inspiring further slippage.