June 20, 2006 -- The New York Stock Exchange's regulatory unit says it will soon take on short-sellers, a senior official said at a conference yesterday.
Oversight chief Susan Merrill kicked off the NYSE's annual regulatory conference by making clear that her group has a number of crooked short-sellers in its sights.
"This is an area where we have seen problems, and you can expect enforcement actions," said Merrill.
She indicated that future actions were likely to begin with short-sales related to secondary offerings.
While no details were provided about specific cases being watched by the NYSE market-surveillance and regulation units, Robert Marchman, the chief of the Big Board's market-surveillance unit, told the crowd that short-sellers might have artificially depressed prices prior to the issuance of some secondary offerings.
Marchman added that the NYSE's market surveillance had been in contact with the SEC on the topic of improper short-sales.
He said that his group was going to focus on brokers trading on behalf of hedge funds.
Traders may bet on a decline in the price of a stock by selling borrowed shares with the aim of buying them back at a lower price. Securities law bars traders from covering such "short sales" with shares from secondary offerings.
Short-selling in front of secondary stock sales has long been a common tactic of traders at many firms and hedge funds, who count on making a quick profit as a stock's price often temporarily dips when new supply hits the market.
The probe comes as the pace of secondary offerings has accelerated from 2005. Companies have raised $49.7 billion in 237 sales so far this year, according to Bloomberg data. That's the fastest start since 2004, when $51.5 billion was raised in 285 secondary offerings over the same period.
A secondary offering involves the underwritten sale of shares in a company that has already gone public. The stock may be sold by the company itself or its current investors.
AI
