SEC Delays Action on Restricting Short Sales
Agency Proposes New Approach, Seeks Comment

By Zachary A. Goldfarb
Washington Post Staff Writer
Tuesday, August 18, 2009

The Securities and Exchange Commission on Monday delayed a decision on whether to put in place new measures to limit short-selling stocks, underscoring the difficulty of pursuing new financial regulations.

The SEC moved swiftly in April to propose new curbs after executives, investors and lawmakers complained that short-selling helped crater the stocks of banks and other firms at the height of the financial crisis. Short-selling involves a bet that a company's shares will fall, and abundant short-selling can push down the price of a company's shares.

But four months after releasing its proposals, the SEC has not settled on an approach. The agency has encountered questions about the cost and effectiveness of its proposals, as well as the speed with which they could be put into practice.

As the SEC and Congress take up a host of new rules this fall to reform financial regulations, these types of questions are likely to resonate further.

On Monday, the SEC suggested a new approach to limiting short-selling and gave 30 days for the public to comment on it.

The new SEC approach would only allow traders to bet against a company's shares at a higher price than what other traders are willing to pay to buy the shares. That may slow down the number of short sales occurring.

Previously, the agency had considered stopping short sales altogether when shares were declining rapidly.

The agency is likely to pass some limits. The three Democratic-appointees on the commission, including chairman Mary Schapiro, have indicated they support new restrictions. But the two Republicans have voiced serious doubts that the curbs would work.

"Today's request for additional comment is consistent with the very deliberative process of determining what is in the best interest of investors," Schapiro said in a statement.

Sen. Ted Kaufman (D-Del.), who has been pushing for more aggressive actions by the SEC, expressed frustration with the decision.

"For the markets to have credibility, we need urgency at the SEC to restore a level playing field for investors. The SEC's process to date has been way beyond deliberative behavior," he said in a statement.

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