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House Democrat asks SEC to put a temporary halt on short selling
September 24, 2001: 6:33 p.m. ET
WASHINGTON (Reuters) - The ranking Democrat of the House
Financial Services Committee has asked financial regulators on
Monday to consider putting a temporary halt to short selling, saying
the practice may be putting further pressure on already fragile
markets.
"I am concerned that the confluence of negative macroeconomic
forces and possible short selling and speculation in stocks from
industries now under pressure may be adding to the downward cycle
we are seeing in the markets since trading resumed on Monday,"
said John LaFalce (D-N.Y.).
"To the extent that short sellers have played a significant role in
creating the current market conditions, I request that you consider
the appropriateness of certain measures, including inhibiting short
selling," LaFalce said in a letter to Securities and Exchange
Commission head Harvey Pitt.
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Short selling is a common but risky way of exploiting a fall in share
price by selling borrowed shares, buying them back later at a
cheaper price, and keeping the difference as profit.
The Commission has the power to alter or suspend activities, such
as short selling, if it decides it needs to do so to protect the public
interest of investors, LaFalce said, citing the Securities Exchange
Act of 1934.
Market regulators across the world have begun to look into the
possibility that people with prior knowledge of the Sept. 11 jetliner
attacks in New York and near Washington sold shares short, betting
that the deadly events would drive down stocks, including insurance
and airline shares.
There have also been reports that put options, whose value rises as
underlying shares slip, were bought in large quantities in the run-up
to Sept. 11, when hijacked airliners smashed into the World Trade
Center and the Pentagon.
LaFalce also asked Pitt to analyze current market conditions to
determine whether short selling or other similar activities have
contributed to recent market declines
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