SEC financials short-selling ban set to expire Oct. 2, but may be extended

By Rebecca Melvin

New York, Sept. 24 - The Securities and Exchange Commission's emergency action to ban the short selling of financial stocks is set to expire Oct. 2, if its intended goal of buying time for the government rescue plan is accomplished. But the ban may be extended, an SEC spokesman said Wednesday.

"The action was intended to give more time for the entire bailout plan," spokesman Kevin Callahan said.

Callahan was unwilling to predict whether an extension will occur or not. "We don't comment beyond the order," he said, adding that it would be difficult to predict what five individuals making up the commission will decide.

The SEC, in concert with the Treasury Department, the Federal Reserve and other regulators, ordered the 10-day short-selling ban on Friday. Two additional measures taken in tandem with that order, were (1) making it easier for issuers to repurchase their own shares on the open market and (2) imposing weekly reporting requirements by hedge funds and other large investment managers in their daily short positions, just as long positions are currently reported quarterly on Form 13F.

On Sunday, amendments to those orders gave power to the listing exchanges to select and add names to the list of financial institutions that cannot be sold short. Issuers were also allowed to opt off the list.

Criteria for selecting the issuers were provided, and they cover banks, savings associations, broker-dealers, investment advisers, foreign and domestic insurance companies, and the owners of any of these entities.

In testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs on Tuesday, commission chairman Christopher Cox said that the short-selling ban was "intended to stabilize the markets until legislation being crafted in Washington becomes law and takes effect."

The order allows for an extension for up to 30 days.

"The commission is in constant communication with market participants regarding responses to market actions," Callahan said, by way of reassuring market participants that the decision to extend would be considered fully.

Convertible players say they have seen a drop in trading volume since the ban was put into effect, and they say an extension would hurt their market.

New convertible issuance in the past year has been dominated by financial issuers, a New York-based sellside desk analyst said. For the year to date, $35 billion in new issuance from financials has come to market.

"It will be a very slow autumn, if the ban is not lifted," the analyst said. "It won't be good at all."

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