09/15/2008 (5:26 am)
SEC to act on abusive short selling: source
U.S. securities regulators plan to take action on abusive short selling of stock before the end of the week, a source briefed on the matter said on Monday.
The measures came as Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz) filed for bankruptcy protection, intensifying concerns that other major financial stocks would accelerate their losses.
The Securities and Exchange Commission will likely adopt proposals to strengthen its short-selling rule, including one that deems it fraudulent for customers to deceive broker-dealers about their intention or ability to deliver securities in time for settlement.
The SEC will also move forward with a plan that would shorten the time in which traders must buy back stock if they fail to deliver a security by the settlement date.
But the SEC will not reinstate and broaden a temporary emergency rule that required traders to preborrow stock before executing a short sale online payday loan.
Two months ago, regulators were faced with similar market turmoil when IndyMac bank was seized by regulators and investors were concerned that Lehman and mortgage finance giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) were veering towards insolvency.
At the time, the SEC announced plans to crack down on rumor-mongering and issued an emergency rule aimed at curbing illegal naked short selling in 19 major finance stocks, including Lehman, Freddie and Fannie.
A “naked” short sale occurs when an investor sells stock that has not yet been borrowed.
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