U.S. Regulators will consider reviving the uptick restriction on short-sellers of stocks and a top monetary official lent his support on Tuesday to modifying an accounting rule that has forced banks to take billions of dollars in writedowns.
Federal Reserve Chairman Ben Bernanke said he was opposed to suspending mark-to-market accounting but said the rule tended to reinforce economic trends and improvements could be made.
The prospect of the changes helped U.S. stocks to their best day in four months, cheered by Citigroup
Barney Frank, who chairs the U.S. House of Representatives Financial Services Committee, told reporters he had spoken to the head of the Securities and Exchange Commission and hoped the uptick rule would soon be reinstated.
I've spoken to Chair Schapiro of the SEC. I am hopeful the uptick rule will be restored within a month, Frank said.
The SEC later confirmed it may meet next month on the uptick issue but any proposal would likely be subject to a public comment period with a final rule possibly months away.
The Commission may conduct a public meeting as early as next month to consider whether to formally propose reinstatement of the uptick rule, or consider other measures related to short sales, said SEC spokesman John Nester.
The uptick rule, adopted after the 1929 stock market crash, allowed short sales only when the last sale price was higher than the previous price. The SEC abolished the rule in 2007, after concluding that advances in trading strategies rendered it ineffective.
Senate Banking Committee Chairman Christopher Dodd said he backed the SEC reinstating the uptick rule I wish they'd do it quickly, the Connecticut Democrat told reporters.
Short-selling is often blamed for precipitous declines in stocks but short-sellers defend their role, saying they prevent shares from becoming overvalued.
The SEC adopted short-term restrictions on short-selling last year but the measures were judged by some market watchers to have been largely ineffective.
Short-sellers borrow stocks they expect will fall in price in the hope of repaying the loans for less and pocketing the difference.
MORE ACCOUNTING GUIDANCE
Frank welcomed Bernanke's support for changes to the mark-to-market accounting rule. I do think you're going to see major movement on mark-to-market. Bernanke kind of blessed that..., he said.
Bernanke stressed that he supported mark-to-market's goal of making financial balance sheets as transparent as possible, but also talked about its shortcomings.
It's one of the things that tends at times to increase the severity of ups and downs in the financial system and the economy, he said in response to an audience question following a speech to the Council on Foreign Relations.
We need to do a lot more to provide guidance to the financial institutions and to the investors about what are reasonable ways to address valuation of assets that are being traded or if traded at all in highly illiquid, fire-sale type markets, Bernanke added.
The SEC and the Financial Accounting Standards Board have said they are working on more guidance to help banks determine values of assets in illiquid markets.
Bernanke's remarks come two days before a U.S. House Financial Services subcommittee is scheduled to meet to consider possible changes to the mark-to-market rule.
The banking industry says the rule is undermining the government efforts to stabilize the financial industry.
But the SEC, which oversees and enforces accounting policy, is not planning a suspension, of mark-to-market, a source familiar with the matter told Reuters. The source was not authorized to speak on the matter and requested anonymity.
The SEC declined to comment.
The top Republican on the Senate Banking Committee, Richard Shelby of Alabama, said on Tuesday he opposed easing mark-to-market. Accounting rules should be designed to ensure that a firm's disclosures reflect economic reality, however ugly that reality may be.
Bernanke also said leaders from the Group of 20 rich and developing economies should agree early next month on principles to guide nations as they revamp financial rules to prevent future crises.
Finance ministers from the G20 meet this weekend in London to lay the groundwork for an April 2 leaders summit where regulatory reform is expected to feature prominently.
It's asking too much for a meeting like that to come out with detailed proposals in many different areas, Bernanke said.
(Additional reporting by Kevin Drawbaugh and Mark Felsenthal; Editing by Tim Dobbyn)