July 16, 2008

SEC Imposes 'Emergency Order' on Shorts

The Securities and Exchange Commission is imposing a form of martial law on Wall Street. The securities regulator took the highly unusual step of putting restrictions on traders who sell short shares of financial stocks.

The steps, issued through what it called 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 Commission 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.

"In these unusual and extraordinary circumstances, we have concluded that
requiring all persons to borrow or arrange to borrow the securities identified in Appendix
A prior to effecting an order for a short sale of those securities is in the public interest and
for the protection of investors to maintain fair and orderly securities markets, and to
prevent substantial disruption in the securities markets," the SEC writes in the order, issued by SEC Acting Secretary Florence E. Harmon

It says that emergency requirement will eliminate any possibility that naked short selling may contribute to the disruption of markets in these securities. It does not go into effect until July 21, and will be in effect until July29, although it could be extended by the SEC.

Here are the 19 stocks effected by the order: