Is it cheating to ban short selling?
Posted
Sep 19 2008, 12:43 PM
by
Kim Peterson
Rating:
The SEC has temporarily banned the short selling of 799 financial stocks (shorting other sectors is still OK), and that's got people fired up today. The SEC says the move will "restore equilibrium to markets" and help fight market manipulation.
But isn't banning shorts manipulation in itself? That's what David Weidner of MarketWatch is asking today. "Our complaint through history about countries that try to influence their markets by changing the rules mid-game was that it was tantamount to cheating," he writes. "For all of its faults, the U.S. markets were supposed to be the most level playing fields in the world."
Here's what others have to say about the move:
Portfolio's Felix Salmon thinks the shorters are going to head over to the options market, which could drive down the price of call options.
Henry Blodget says the ban is outrageous, and will make the market less efficient and hurt some investors' ability to make money. Stocks will shoot far higher now than they would have if shorts had been around, he writes.
The short sellers, of course, are not pleased. "This is borderline insanity," said short seller William Fleckenstein to CNN. "If the SEC had set out specifically to make the liquidity problems worse, they couldn't have done a better job."
So, uh, does anyone like the ban? New York attorney general Andrew Cuomo does, calling shorters "looters after a hurricane." In normal conditions, people hear rumors and they spend time checking it out, Cuomo told the New York Times. But in this frenzied market, where people are on pins and needles, he says, false information can blow up fast.
