Investor Relations 101

[Tina]

Issue Date: IR Alert - July 28, 2009

As Political Pressure Builds, SEC Acts Fast to Limit "Naked" Short-Selling: Interim Rule Created During Meltdown To Be Made Permanent

Amid intense political pressure, the Securities and Exchange Commission Monday said it is taking several steps toward curbing so-called naked short-selling — or borrowing and then selling shares in the hope the stock price will fall. The practice has been blamed by some for driving down the shares of financial stocks. Of particular concern to some critics is naked short-selling, in which investors sell the stock without first borrowing the shares, the Wall Street Journal reports.

The SEC said it will make permanent an interim rule passed during last fall's market turmoil that requires broker-dealers to promptly purchase or borrow securities to deliver on a short-sale. Additionally, the SEC said it is working with several self-regulatory organizations to make short-sale volume and transaction data available to the public on the Internet. Such a move will enhance the amount of information already disclosed under another temporary rule currently. That rule, which expires in August, applies only to certain institutional money managers and doesn't require public disclosure, the SEC said, reports Journal writer Sarah N. Lynch.

Instead of renewing that temporary rule, the agency said it is pushing for broader disclosure of information to people outside of the commission.

"Today's actions demonstrate the commission's determination to address short-selling abuses while at the same time increasing public disclosure of short-selling activities that affect our markets," SEC chairman Mary Schapiro said in a statement.

The SEC said it will hold a roundtable on Sept. 30 to discuss possible new regulations to curb abusive short-selling, such as a pre-borrow requirement.

Separately, the SEC is also reviewing several other proposals to limit short-selling, possibly by reinstating a similar version of the "uptick" rule or imposing a circuit-breaker. A final decision on those proposals is expected later this summer.