Federal securities regulators are considering several ways to place restrictions on traders who bet that stock prices will fall.
One option the Securities and Exchange Commission put forward for public comment Wednesday is restoring a Depression-era rule that prohibits short sellers from making their trades until a stock ticks at least one penny above its previous trading price. The goal is to prevent selling sprees that feed upon themselves -- actions that battered the stocks of banks and other companies over the last year.
Short-selling is legal and widely used on Wall Street. But as the market has plunged, investors and lawmakers have pressed the SEC to reinstate the rule. They say its absence since mid-2007 fanned market volatility, prompting bands of hedge funds and other investors to target weak companies with an avalanche of short-selling.
The SEC meeting marked the second time in less than a week that financial relief measures pressed by Congress were taken up by independent overseers. The Financial Accounting Standards Board on April 2 gave companies more leeway in valuing assets and reporting losses, a move that sent financial stocks and the broader market soaring.
Both sets of changes would especially benefit banks and other financial institutions, whose balance sheets have been battered in the financial crisis and whose stocks have been targeted by short sellers.
At the same time, the Obama administration has proposed to Congress a sweeping overhaul of the nation's financial rule book meant to prevent a repeat of the banking crisis that toppled iconic institutions and wiped out trillions of dollars in investor wealth. It includes requiring larger hedge funds, and other private pools of capital, to register with the SEC and open their books to federal inspection.
The SEC could settle on one short-selling plan of the five advanced Wednesday and formally approve it sometime after a 60-day comment period.
SEC Chairman Mary Schapiro said Wednesday agency was beginning "a thoughtful, deliberative process to determine what is in the best interests of investors" before taking final action.
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