Short-selling rule to exclude market makers

奥古斯塔

By Joanna Chung in Washington Published: July 19 2008 03:00 | Last updated: July 19 2008 03:00 Market makers, special traders that match buyers and sellers in the stock market, will be partly excluded from the emergency rule aimed at stopping abusive short-selling, the US Securities and Exchange Commission said yesterday. The amendment comes three days after the issue of an emergency rule barring so-called "naked" short-selling of shares in significant financial entities, including mortgage financiers Fannie Mae and Freddie Mac and 17 banks, including big Wall Street firms. Short-sellers aim to profit from share declines, usually by borrowing a stock, selling it and buying it back in the market. But in a "naked" short the shares are sold without being borrowed first. That allows short-sellers to escape paying interest on the borrowed shares and lowers their trading costs. The original emergency rule, which could last for up to 30 days starting on Monday, would require anyone making a short sale to borrow the security first and deliver them at settlement, thus preventing short-sellers from using the same parcel of borrowed stock to execute shorts. But the SEC yesterday said that it had amended the rule so that market makers would be exempt from having to borrow or make an arrangement to borrow before making a trade. "The purpose of this accommodation is to permit market makers to facilitate customer orders in a -fast-moving market without possible delays associated with complying with the borrow and arrangement-to-borrow requirement of the order," the rule amendment said. A market maker is a firm that stands ready to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price. They include big Wall Street firms such as Goldman Sachs, Lehman Brothers and Morgan Stanley, as well as lesser known names. An SEC spokesman yesterday said the amendment would "provide all of the new investor protections against naked short sales while assuring continuing liquidity and best execution in our markets". The emergency rule would apply to trading in shares of Fannie Mae and Freddie Mac - the government-sponsored entities that own or guarantee almost half of US mortgages - and all primary securities dealers including Lehman, whose shares have been battered by rumours the bank says are false. The action comes amid intensifying efforts by authorities to crack down on rumour-mongering intended to manipulate securities prices. The SEC has been investigating whether false rumours and abusive short selling contributed to the collapse of Bear Stearns in March and the declines in Lehman's shares.

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