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SEC Seeks 'Marketwide' Cure To Short-Sale Abuses

About time!

(Updated in the second paragraph to note disclosure of significant short positions to SEC is under consideration.)

By Judith Burns

Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- Look for U.S. securities regulators to propose a marketwide cure for short-selling abuses within the next few weeks, Securities and Exchange Commission Chairman Christopher Cox said Tuesday.

"We're focused on marketwide solutions," Cox told reporters after a press conference at the agency's Washington, D.C., headquarters. He declined to specify what the SEC will propose but said disclosure of significant short-sale positions is one of the ideas under consideration.

Regulators aim to crack down on delivery failures of stocks used in short- sales transactions, not to prop up stock prices, Cox stressed.

"We intend to have no impact whatsoever on the direction of prices, that's not the purpose of the regulation," said Cox.

The SEC has previously announced it planned to propose new rules to attack short-sale abuses. The agency issued a temporary emergency order in July to tighten restrictions on short sales in federal housing-finance giants Fannie Mae (FNM) and Freddie Mac (FRE), and 17 companies that act as primary dealers in U.S. Treasury debt, a group that includes Wall Street firms such as Lehman Brothers Holding Inc. (LEH) and Merrill Lynch & Co. (MER).

Cox said the short-lived experiment showed delivery failures in the 19 targeted stocks were reduced "substantially."

"It was a very effective order from that standpoint," said Cox. "The reduction in 'fails to deliver' was large."

Rumor-mongering about financial companies also halted during the experiment, Cox added. The SEC had issued warnings on that subject in July and, Cox said, " the rumors stopped."

Short sellers aim to profit from declining stock prices by borrowing shares to sell in hopes of buying them back later at a lower price. "Naked" short sellers don't borrow shares in advance of short sales and may never do so, a practice that can have a punishing effect on a stock's price. The SEC has previously sought to curb abusive naked short selling and delivery failures; its emergency order went further, requiring short sellers to borrow shares in advance of short-sale transactions in the 19 targeted stocks.

Separately, Cox said he expects the SEC will vote later this year to seek public comment on a "road map" that lays out a timetable for U.S. companies to move toward international financial reporting standards, or IFRS. He said the move will be "one step on what will undoubtedly be a long journey."

-By Judith Burns, Dow Jones Newswires; 202-862-6692; [e-mail]

(END) Dow Jones Newswires

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