SEC bans short-selling for financials

The U.S. Securities and Exchange Commission took what it called “emergency action” on Friday and temporarily banned investors from short-selling 799 financial companies.

The temporary ban, aimed at helping restore falling stock prices that have shattered confidence in the financial markets, takes effect immediately.

Short sellers borrow stock with the aim of selling it, then buy it back at a lower price, hoping to pocket the difference. The commission said short sellers add liquidity to the markets during normal conditions, but recent unbridled short selling has contributed to the recent tailspin in the stock market.

“The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets,” said SEC Chairman Christopher Cox in a statement. “The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets.”

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Cox said the action “would not be necessary in a well-functioning market,” and is just one of many actions being taken by the government to jump-start the embattled financial markets.

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