SEC extends short-sell ban for financials

The Securities and Exchange Commission announced the extension of the ban, which was put in on Sept. 18 in a bid to shore up investor confidence in the face of the spiraling market crisis.

The ban, which was to expire Thursday, now will last until the third business day after enactment of the $700 billion financial bailout plan now before Congress. It will end no later than Oct. 17.

Late Wednesday, the Senate passed the bailout plan, which appeared to be gaining ground in the House, where Republicans' opposition softened.

The idea is that the extension will give enough time for financial markets to calm, with bailout program's plan to buy up Wall Street's toxic mortgage debt possibly starting to have a positive effect. By law, the SEC's emergency ban could not be extended beyond Oct. 17.

In the days since the ban took effect, the stock market has been on a rollercoaster ride. On Monday, the day the bailout plan was rejected in the House, the market shot downward and sent the Dow Jones industrials on a record 778-point plunge. Some relative calm returned to the markets Wednesday, with Wall Street falling only moderately and the credit markets still showing signs of strain. The Dow Jones average closed down about 20 points.

Short-sellers bet against a stock. The practice, which is legal and widely used on Wall Street, involves borrowing a company's shares, selling them, and then buying them when the stock falls and returning them to the lender. The short-seller pockets the difference in price.

Although short selling can make markets more efficient and bring in more capital, regulators have maintained that it has widened the scope of the financial crisis and contributed to the collapsing values of investment- and commercial-bank stocks in particular--and the demise of Lehman Brothers.

The SEC "has taken steps during recent weeks to address concerns regarding short sales in light of the ongoing credit crisis," the agency said in a statement issued Wednesday night. "The steps (the SEC) has taken are designed to ensure the continued smooth operation of orderly markets. Our actions have been taken in consultation with regulators of the major developed securities markets around the world, with whom we have coordinated in monitoring market reactions."

But on Wall Street, professional short-sellers have said they were being unfairly targeted by the SEC's prohibition. And some analysts have warned of possible negative consequences, maintaining that banning short-selling could actually distort--not stabilize--edgy markets.