Hoyer Proposes Regulating Short-Sellers of Shares (Update1)
By James Rowley
Oct. 20 (Bloomberg) -- U.S. House Majority Leader Steny Hoyer proposed legislation to regulate short-selling of stocks by requiring shareholders to be given notice and payment when brokers lend their shares to short-sellers.
Hoyer's plan would require brokers to publish daily information about the identity of short-sellers and the companies whose shares they are selling short. Brokers would have to disclose any short-sellers who fail to deliver shares to the investor they were to be sold to, according to a summary of the proposal distributed by his office.
The measure will "protect from the abuses of those who drive down" the share prices of "small, vulnerable enterprises" and "make it very difficult for them to operate," Hoyer told reporters today in Washington.
Short-sellers bet that the value of a company will decrease by borrowing shares from another investor, for a fee, and selling them to someone else.
The short-sellers agree to return the borrowed stock by a certain date. If the share price drops, short-sellers profit from the difference between what they sold the shares for and the price they paid to repurchase them.
Because brokers charge to lend shares to short-sellers, "the owner of that stock ought to have an interest in that process" and be compensated, Hoyer said.
The measure would require brokers to alert investors that they may lose voting rights if their shares are loaned to short- sellers on the date of a corporate election, according to the summary.
Hoyer said he hoped the measure would be included in financial-regulation overhaul legislation being drafted by the House Financial Services Committee.
To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net
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