SEC Disappointing Goldman Sachs Amid Vote on Short-Sale Curb Share Business ExchangeTwitterFacebook| Email | Print | A A A By Jesse Westbrook Feb. 24 (Bloomberg) -- The U.S. Securities and Exchange Commission is poised to curb some bearish stock bets, ending a yearlong debate between individual investors and Wall Street with a solution that fails to satisfy anyone. A majority of the SECâs five commissioners will vote today to temporarily restrict short sales of a companyâs shares once it falls 10 percent, according to two people with direct knowledge of the rule. When the 10 percent threshold is triggered, traders could only execute short sales for the stock at a price above the marketâs best bid, said the people, who declined to be identified before the decision. General Electric Co., Charles Schwab Corp. and more than 5,600 people who signed a petition sent to the SEC wanted a short-selling restriction that was always in effect, similar to the so-called uptick rule that the agency abolished in 2007. Goldman Sachs Group Inc. and hedge funds Citadel Investment Group LLC and D.E. Shaw & Co. lobbied against a limit. âNobody is going to be happy,â said James Angel, a finance professor at Georgetown University in Washington who has served as an adviser to stock exchanges. âThe benefit of this new rule is that it provides political cover to the SEC so they can say they did something.â The SEC said in March that it would consider restrictions on short selling, which involves the sale of borrowed stock in the hope of profiting by buying the securities later at a lower price and returning them to the shareholder. The decision followed a 19 percent drop in the Standard & Poorâs 500 Index during the first two months of 2009 and lobbying from 27 members of Congress, including House Financial Services Committee Chairman Barney Frank, a Democrat from Massachusetts. Uptick Rule The lawmakers wanted the SEC to bring back the uptick rule, which barred investors from betting against a stock until it sold at a price higher than the preceding trade. The limitation had been in place for almost 70 years before the SEC scrapped it in June 2007. Four months later, the S&P 500 began a 17-month bear market that erased 57 percent of its value. The plan the SEC will probably approve today is intended to be the least intrusive for markets and easier for securities firms to implement than the alternatives, the people said. The SEC ignored a request from trading venues including the Chicago Board Options Exchange to exempt market makers. âWe received thousands of public comments expressing every viewpoint imaginable,â SEC spokesman John Nester said. âIn the end, the object is to gain insight from all the comments and then shape a rule that best protects investors.â Boosting Confidence SEC Chairman Mary Schapiro, a political independent, has defended the need for short-sale regulations on the basis that they will boost investor confidence. Democratic Commissioners Elisse Walter and Luis Aguilar also support curbs. Republican SEC Commissioners Kathleen Casey and Troy Paredes arenât convinced benefits from limits on bearish bets will outweigh the costs and will likely vote against the agencyâs rules, the people said. Caseyâs office didnât return a phone call seeking comment and Paredes wouldnât respond. Short selling was blamed by lawmakers, former Morgan Stanley Chief Executive Officer John Mack and investors for pushing the U.S. economy toward the brink of collapse by driving down bank stocks. Under pressure from politicians, the SEC temporarily banned bearish bets against almost 1,000 financial stocks in September 2008. Finance, Turbines Michael McAlevey, a vice president at GE, urged the SEC during a May conference to restrict short selling all the time instead of just enacting circuit breakers following a 10 percent plunge. He said the Fairfield, Connecticut-based company, whose units range from a finance division to a producer of turbines for power plants, was concerned temporary curbs would encourage bearish bets because traders would rush in to execute short sales before the circuit breaker was triggered. GE spokeswoman Anne Eisele said the companyâs stance hasnât changed. Thereâs no evidence the SEC proposals will reduce abusive short selling or boost investorsâ confidence, Paul Russo, the head of U.S. equities trading for Goldman Sachs, wrote in a September letter to the SEC. Bearish bets help expose fraud and prevent companies from becoming overvalued, he added. His New York-based employer is the most-profitable securities firm in Wall Street history. Russoâs letter reflects Goldman Sachsâs current views, company spokesman Ed Canaday said. Goldman Sachs, Chicago-based Citadel and D.E. Shaw in New York all urged the SEC against restricting short selling. If the SEC determined that new rules were necessary, the three companies encouraged the agency to opt for a circuit breaker. The SEC followed their advice.
My first thought when anyone proposes a rule is: What are the exceptions? I looked around on the sec site and couldn't find the rule they are voting on so I don't know what to make of it. The current climate/culture is not to have the market go down under any circumstances, the short sell rule will probably give the ppt a breather. (Every cos a winner, everyone gets a trophy) .
"It's about time, the greed and lack of regulation on short sellers, who have already caused mayhem on Wall Street." --John Mack lmao
Short selling was blamed by lawmakers, former Morgan Stanley Chief Executive Officer John Mack and investors for pushing the U.S. economy toward the brink of collapse by driving down bank stocks. Under pressure from politicians, the SEC temporarily banned bearish bets against almost 1,000 financial stocks in September 2008. The allegation that short-selling nearly broke the back of the US economy is laughable. Never mind that fact that Trillions of $$ in mortagaes were doled out to sub-prime borrowers. No,No! This has no bearing on the pickle we are in! This is a perfect example of politicians deflecting blame to another party so as to wash their hands of any responsibility. Too bad so many Americans are not sharp enough see this head-fake for what it is.
The point of this new law is to: Like in a football game, its to keep the opposing players from "piling on extra players"(ineligible bcuz of not having stock to borrow)" on the player thats already tackled down on the ground. GS and some of the other firms lobbying against it are just upset that their free lollipop is being taken away. (or you can just call it what it really is for these firms... GREED) Ita about time they enacted this law..better late than never.