Ban on ‘naked short selling’ worries firms

“The [SEC] emergency order will further constrain normal market operations," said the Managed Funds Assoc. president.
JUL 31, 2008
The Managed Funds Association and the Coalition of Private Investment Companies, both of Washington, yesterday expressed concern about the Securities and Exchange Commission's extension of a ban on “naked short selling.” “We are deeply concerned that the extension of the emergency order will further constrain normal market operations, extract beneficial liquidity from the markets and create inefficiencies that will distort shareholder value,” MFA president Richard Baker said in a statement. A July 15 order by the SEC was extended this week through Aug. 12. The order was extended for a second 10-day period to cover naked short selling in the securities of financial institutions for which the Federal Reserve Board has granted temporary access to its discount window, the SEC said in a statement issued late Tuesday. The order was extended for a second 10-day period and won’t be further extended, the SEC said. After the extended order expires, the SEC will immediately consider the creation of a rule that would be effective after public comments were filed. “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,” SEC Chairman Christopher Cox said in the statement. Naked short selling is selling short without borrowing the stock to be sold, and failing to deliver it.

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