The Short Sale Ban is Really Up for Debate

An SEC official who spoke on condition of anonymity told FOX Business a short sale ban is “not something the commission is currently contemplating.”

However, bankers continue to push for a short sale ban on banking stocks despite the claims.

In September 2008, big banks were on the verge of collapse.

The SEC enacted a 21-day ban on shorting the shares of the remaining big banks.

However, investors continued to sell stocks due to the predicament the entire banking sector was in.

Big law firms at the time urged the SEC to ban short selling to protect against “coordinated short attacks.”

But FOX Business says SEC staffers are advising against implementing a short sell ban today.

They say the last time a ban was implemented following the 2008 financial crisis, it actually added more uncertainty to the financial markets, causing bank stocks to fall further.

“Upon evaluating the impact of the ban (in 2008), there was compelling evidence it was counterproductive and resulted in costs to big segments of the market,” said James Overdahl, Former Chief Economist of the SEC.

Proponents of short selling say it adds to the price discovery of stocks as the market digests both positive and negative information.

Supporters also say that most market manipulation occurs by traders pumping stocks with unfounded assertions of companies’ prospects, thus causing massive small investor losses after the stocks correct.

Bankers Urge the SEC to Temporarily Ban Short Selling

Lindsey Johnson, CEO of the Consumer Banking Association, which represents mid-sized banks, said policymakers need to “take a serious look at the role short sellers are playing in the market and their impact on Americans’ confidence in our financial system.”

People close to the SEC say Gensler will have to propose the ban himself and push it through the full five-member commission on a party-line vote.

The two Republican commissioners, Hester Peirce and Mark Uyeda, will probably vote against any such measure, says FOX Business.

“As I’ve said in times of increased volatility and uncertainty, the SEC is particularly focused on identifying and prosecuting any form of misconduct that might threaten investors, capital formation, or the markets more broadly,” said Chairman Gary Gensler on May 4th.

The American Bankers Association on is urging federal regulators to investigate significant short sales of publicly traded banking equities that it said were “disconnected from the underlying financial realities.”

“We urge the SEC to consider all its existing tools and to take measures to reduce the avenues for abusive trading practices and restore investor confidence,” the banking group said.

“These measures include, at a minimum, a clear message and appropriate enforcement actions against market manipulation and other abusive short selling practices.”

U.S. federal and state officials are assessing the possibility of “market manipulation” behind big moves in banking share prices in recent days, a source familiar with the matter said on Thursday, as the White House vowed to monitor “short-selling pressures on healthy banks.”

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