Posted on 09/19/2008 2:38:17 AM PDT by Fred
FOR IMMEDIATE RELEASE 2008-211 Commission Also Takes Steps to Increase Market Transparency and Liquidity
Washington, D.C., Sept. 19, 2008 — The Securities and Exchange Commission, acting in concert with the U.K. Financial Services Authority, today took temporary emergency action to prohibit short selling in financial companies to protect the integrity and quality of the securities market and strengthen investor confidence. The U.K. FSA took similar action yesterday. Additional Materials
Link to companies
* Emergency Order, Release No. 34-58592.pdf
* Emergency Order, Release No. 34-58591.pdf
* Emergency Order, Release No. 34-58588.pdf
* Form SH
* Form SH Instructions
The Commission’s action will apply to the securities of 799 financial companies. The action is immediately effective.
SEC Chairman Christopher Cox said, “The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets. The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets. This action, which would not be necessary in a well-functioning market, is temporary in nature and part of the comprehensive set of steps being taken by the Federal Reserve, the Treasury, and the Congress.”
Today’s decisive SEC action calls a time-out to aggressive short selling in financial institution stocks, because of the essential link between their stock price and confidence in the institution. The Commission will continue to consider measures to address short selling concerns in other publicly traded companies.
Under normal market conditions, short selling contributes to price efficiency and adds liquidity to the markets. At present, it appears that unbridled short selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation. Financial institutions are particularly vulnerable to this crisis of confidence and panic selling because they depend on the confidence of their trading counterparties in the conduct of their core business.
Given the importance of confidence in financial markets, today’s action halts short selling in 799 financial institutions. The SEC’s emergency order, pursuant to its authority in Section 12(k)(2) of the Securities Exchange Act of 1934, will be immediately effective and will terminate at 11:59 p.m. ET on October 2, 2008. The Commission may extend the order beyond 10 days if it deems an extension necessary in the public interest and for the protection of investors, but will not extend the order for more than 30 calendar days in total duration.
The Commission notes today’s similar announcement by the U.K. FSA. The SEC and FSA are consulting on an ongoing basis with regard to short selling matters and will continue to cooperate in carrying out regulatory actions.
The Commission also has taken the following steps to address the recent market conditions:
* Temporarily requiring that institutional money managers report their new short sales of certain publicly traded securities. These money managers are already required to report their long positions in these securities.
* Temporarily easing restrictions on the ability of securities issuers to re-purchase their securities. This change will give issuers more flexibility to buy back their securities, and help restore liquidity during this period of unusual and extraordinary market volatility.
First they corrupt college football and now the SEC is going after Wall Street. When will it end.
we need more freedom, not less. Sound money, not easy money.
Do not be surprised if it is found that this week’s market drops were the result of a coordinated attack of naked short-sellers. Think Soros types that plan and exploit weaknesses and systematically drive down prices.
Sort of the financial equivalent of several people suddenly shouting ‘fire’ in a crowded theater.
Under normal market conditions, short selling contributes to price efficiency and adds liquidity to the markets.
It's a prudent move, this temp halt to short selling; but I think it will be of short duration, certainly until signs appear showing that market equilibrium stabilization is solidly underway.
Hadn’t thought about that: But you are right; Past is prelude to the future. Dems create crisis in order to come in later as the “Savior” to whatever issue/agenda item they’ve decided to play havoc upon.
soros
And it gets Sarah Palin off the front page. Now I’m the first to say that Lehman Brothers and other financial institutions were ripe for a fall. But the violence of the selloff suggests skulduggery. If you study the October 1987 market crash, you’ll see that automatic program trading contributed greatly to that market break.
http://en.wikipedia.org/wiki/Black_Monday_(1987)
“The most popular explanation for the 1987 crash was selling by program traders.[6] U.S. Congressman Edward J. Markey, who had been warning about the possibility of a crash, stated that “Program trading was the principal cause.”[7] In program trading, computers perform rapid stock executions based on external inputs, such as the price of related securities. Common strategies implemented by program trading involve an attempt to engage in arbitrage and portfolio insurance strategies. The trader Paul Tudor Jones predicted and profited from the crash, attributing it to portfolio insurance derivatives which were “an accident waiting to happen” and that the “crash was something that was imminently forecastable”. Once the market started going down, the writers of the derivatives were “forced to sell on every down-tick” so the “selling would actually cascade instead of dry up”.[8]”
I know I've been watching things in my portfolio ...very closely...but I don't have access to market information throughout the day. So when a bank etc. suddenly drops I would have no way of knowing it until is maybe too late.
Things I do know the one bank stock I own has a nominal amount invested in the subprime mortgage scheme. I read that months ago and felt very comfortable leaving it be. It has fluctuated up and down 5% this year. Even in the selloff earlier in the week it dropped 3%, but gained 10% yesterday.
Overall what is in my portfolios has been there for nearly 10 years, grown nicely, and has survived ups and major downs (after 9/11) with less volatility than some of my acquaintances.
On Wednesday I had to curtail my “fear” from selling off everything. That is what I wanted to do. I had to keep reminding myself of past performance and what I hope are still strong fundamentals in my investments. I am no market genius, but when I invested it was what they call for the long-term.
Some here may call me foolish right now, but I will watch, hold my breath at times, but take some confidence in the fact that what is in my portfolio was closely considered and evaluated at time of purchase and regularly.
I think the SEC made a smart move for now. What concerns me are other investors that will not take the time to reevaluate their real risk. As I said, I too wanted to sell it off the other day and had to fight that urge and through review of the fundamentals determine what I wanted to reasonably do.
As my Aunt used to say when she first was teaching me about investing...it is all only paper.
I’ve been an investor for 35 years. Long-term buy and hold. I’ve made mistakes and a few good decisions, too. But “get rich slow” has proven to be almost foolproof. One has to master his emotions. Money is an emotion thing, not a logic thing.
Oh yeah, long term washes out all the short term ups and downs and eventually grows with the economy.
Took me a while to figure that out. Had all sorts of day trade visions, now firmly entrenched in a slew of mutual funds.
“””””So much for equal protection under the law! This order should apply across the entire market or not at all!
The financial houses are allowed to short the life out of other companies (OSTK, SIRI, CALM, CROX, all the reg SHO list) but when they are under attack they get special rules.
THIS IS AN OUTRAGE! Every company should be covered!”””””
________________________________________________________
I could not agree with you more. After watching junior natural resource stocks get pounded to unheard of lows, to stock values less than the value of metals they have in the ground, so bigger companies can come in and scoop them up on the cheap.....
Well, it is an outrage that this “Banker Protection Act” in regards to short selling banks....is not across the board in ALL sectors. Level playing field, my ass. It is ever more clear that political slush money works its charms again.
That is what I think we're seeing. I know when I decided to take the big leap into the market it was clearly explained/taught to me that I could lose everything. Nothing was ‘government backed.’
Now, I see bailout after bailout...
The dems. will use it to say the public is too stupid to be in the markets, too stupid to manage their finances, too stupid to buy homes & mortgages. And you know what, in a manner of speaking they are right. Those who can't/won't manage their finances should have never been able to get mortgages. They should have been in rent.
The government wanted to give them the privilege of home ownership, but what they got in return was an dysfuntionally enabled market. They gave the man a fish, but never taught him how to fish. The dems. thought ownership would equal responsibility, they neglected one key component in their scheme. It has to be 'earned' ownership to gain responsible citizens.
Abb, I'm in solid agreement with you. IMHO, this was how the "littler" players were to receive their payoffs.
There have been times in recent years where I thought the Constitution was being ignored, Kelo, for example. This week, however, it was absolutely shredded into tiny pieces. In addition to equal protection clause violations, new, broad sweeping powers for the Federal gubmint were created out of thin air. Please excuse me while I go throw up.....
Don’t be surprised if the market drops because the short seller squeeze is no longer available to prop up the market.
What do you think the financial stocks have rallied on since July ? The discovery of good debt on their balance sheets, moving more so-called assets to a Level 3 classification, or shorts being squeezed out of their positions and forced to but the stocks to cover ?
Let’s see - where is short selling prohibited ? Shanghai. And the Shanghai market is down how much, compared to the Dow ? I believe that would be 70% vs. 20 %.
Be careful what you wish for; the unintended consequences have a bite.
And from 1933, it took the average buy-and-hold investor until 1950 to get back even to 1933 levels.
When are you retiring ?
+
I’ve never said short-selling should be prohibited. But ‘naked’ short-selling shouldn’t be allowed.
And to be quite frank, I’ve never been a big fan of buying on margin. I think it should be not allowed, but that’s just my opinion. I think it leads to buying panics, which is the opposite of a selling panic like we saw Monday and Wednesday.
I was quite lucky when I was starting out some 30 years ago to get an inexpensive lesson on the pitfalls of margin. I learned it wasn’t conducive to long-term wealth accumulation. It’s a get-rich-quick scheme.
As far as the recent market short-term fluctuations, I consider it statistical noise. Long-term, the United States economy is not to be bet against. Many ‘experts’ over the years have written us off - they were all wrong. They’re wrong this time, too. The health of the equity markets is ultimately tied to the productivity and innovation of the American citizen. It always has and always will be.
This isn’t 1933. Not even on the same page. Not even in the same language.
On the surface, this seems like a move to save Wachovia and Morgan Stanley. The banks with reasonable balance sheets have bought all they can.
I wouldn't be at all surprised if that's what happened. I would be surprised if it then actually got reported. The media is too invested in the fiction that "failed republican policy" caused the meltdown. And McCain rushes in to help them.
The current Forbes has an article on Lehman Brothers, written before the failure, that says the stock is a favorite of the shorts.
This is a very important statement. Consider the naked shorts just days before the bankruptcy. They sold stock that didn’t get exist and got the money. The buyers on monday were out the cash and the stock.
It was more or less free money for the shorts. One can only wonder how many senators and staff and staff mothers were short Lehman last week.
nicola_tesla, you said a mouth full! Just my opinion, but I’d like to see them bring back the uptick rule. Also, ban naked shorting all together.
It's more like 1938 except our debt is 350% of GDP instead of 250% (public + private) even though we haven't been through a depression. We have had greater than the New Deal level of spending, and a personal and corporate debt binge far outweighing anything from the 30's. Our financial system is much more precarious now thanks to the excessive debt and derivatives.
Removing the uptick rule was a big factor. It should not have been removed. My question is are the institutions and hedgies subject to the day trade rules like individuals— 4 roundtrips in 5 days or something?
Well,we can’t have a short on AIG,can we?I mean,the Fed Reserve owns 80% of it now.Nice way to stack the odds in your favor for a sure profit.
Jack Bogle on CNBC. “Ignore your way through it. Invest it away.”
You are beyond wrong and are either a colossal a) tool b) idiot. Short selling serves a purpose in that it actually in the long run stabilizes the market. Invoking Soro’s name is like Rudy invoking 9/11, crying wolf. The economic fundamentals are not good and the reason these companies are going bankrupt or teetering on the edge of bankruptcy is not because of short attacks, but because they are over leveraged on faulty assets that are no longer worth what they thought they were worth due to declining real estate prices and have no capital on hand. This akin to putting a band aid on a gushing artery wound as the real estate market has not bottomed and there are going to be more defaults as the homebuilders get reamed as they so royally deserved. This is nothing more than clear government corruption by Paulson and ilk to protect the share value of his golf buddies at Goldman SUCHS. Who I might add are past masters of manipulative short selling for a quick profit. Now that short selling is being done to them, they cry foul and go to mommy to get the mean investors to stop. This is a clear sign to people that they should not invest their money in Wall Street as this is a fixed game and you cannot win in a fixed game. There can be only one winner, and that winner by government decree is Wall Street.
The reason for the melt down of the BDs is because they serve no useful purpose. No body needs them. To buck up the payrolls and stock options they went after financial engineering. MER is as useless as tits on a bore hog. And just as piggy.
I'll thank you to refrain from the name-calling. We can have a civil debate - or not.
I'm not suggesting short-selling be forbidden, but 'naked' short-selling should not be allowed.
And as far as your hysterical rantings about Wall Street being "fixed," that is just hyperbole worthy of someone like Chris Matthews. Long-term investing strategy works every time it's tried. It goes awry when greed or fear overcome logic. I'm putting my money where my mouth is and have done so for 35 years.
I admire your optimism, but in this case it is entirely misplaced. Yes, the American worker/entrepreneur is an admirable and hardworking creature, but in this case he is being swamped and run over by the pigmen on Wall Street.
We are talking trillions of dollars - the entrepreneur is not going to find funding for that new great product because the pigmen are in the process of running off with the loot. Capital markets are still frozen, bonds are being murdered - look at TNX and the spreads, and since Paulson and Bush have just begun to print with the implied acquiescence of CONgress, the taxpayer and his descendents will live much poorer lives.
Do you see perp walks for the heads of IBs, commercial banks, AIG, Fannie, Freddie, tan man Mozilo, etc etc, the ones who ran their companies into the ground while walking off with millions and hundreds of millions of dollars in salsary, perks, bonuses, etc ? Are you, the taxpayer, going to get any of that back ? Will it be YOU sitting in that tony Hamptons mansion by the pool ?
This is indeed historical, akin to the day that FDR confiscated gold.
If you think that this is just “statistical noise”, then you have become deadened to the loss of the pretense of free markets and liberty. I know quite a few people who owned a lot of SKF - they were murdered overnite when the SEC banned shorting - not just naked shorting, but all shorting of 800 companies. You can bet a class-action suit is coming up.
Welcome to the USSA, comrade.
No, you’re right, it’s not.
It’s worse.
In 1933 we didn’t see the government defacto nationalizing 1/2 of all mortgages, the largest insurance company in the world, bailing out banks with taxpayer dollars, and now proposing to buy all bad debt and make the taxpayer liable. Nor was the 1933 government a debtor government to the tune of nearly 100% of GDP.
Yessirree, the 1933 government wasn’t that stupid. They knew enough to ringfence the credit rating and value of Treasury bills. This administration and CONgress is either too stupid or too venal, and we the taxpayer are getting it right between the eyes. BOHICA
I’d rather have FDR in charge right now, and I NEVER thought I’d say that.
We shall just have to agree to disagree.
Amen!
I heard a bit of Rush’s show today. Interestingly, he also expressed skepticism about the “coincidence” of all the market turmoil, etc. Soros, Red China, etc.
My thoughts exactly.
Well, according to Reagan's Secretary of the Treasury as well as a Reagan appointed Fed Chairman "This is the worst financial turmoil since the Great Depression."
But I am sure you have a better understanding of the markets and economy than these guys.
Did he? I was just at the Lovable Fuzzball’s website, and missed this. I’ll need to find out exactly what he said. Thanks, abb. I missed his show because I had to work very hard today so that Democrats could steal what I earned and tell me that I’m a “patriot” for giving my earnings away to them and their little allied gerbils.
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