SEC Bans the Selling of Financials at a Loss
Under new SEC rules, selling of financial stocks for less than the price purchased is to be banned.
The SEC approved the ban, which will prohibit investors from reducing or selling positions in all publicly quoted financial companies at values less than the purchase price of those positions. The ban will remain in force until such time after the SEC publishes a review of selling rules.
Financial turmoil has brought about the recent ban, as financial institutions have come under pressure from widespread selling of positions in that sector. Sellers have been blamed for driving down the share price of AIG and Lehman Bros., the insurance and investment banking interests that have capsized during the past week.
Christopher Cox, chief executive of the SEC, said: “While we still regard selling financial stocks as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets. As a result, we have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector.”
Though the ban currently applies only to a short list of politically well-connected financial institutions, the SEC said that it “stands ready to extend this approach to other sectors if it judges it to be necessary.”
Rule change is the SEC’s second attempt to curb selling of financials. The regulator has already prevented the naked short-selling of shares in certain financial companies.
News of the ban comes amid growing political backlash against selling at a loss, which has been blamed for exacerbating the woes of the country’s banks, and for contributing to the crisis of confidence in some of the country’s largest financial institutions.
Treasury Secretary Hank Paulson, formerly with Goldman Sachs, said : “Short selling is not the sole or principal reason for banks’ shares to have fallen in recent weeks. But short-selling has not helped, and conditions are such that restraint over short-selling and stock-lending are appropriate.”
See also: UK bans short selling.
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