SEC May Extend Short-Selling Ban on Financial Stocks

SEC May Extend Short-Selling Ban on Financial Stocks

Oct. 1 (Bloomberg) -- U.S. regulators are likely to extend a ban on short-sales of financial stocks and is considering new protections for all publicly traded companies, NYSE Euronext Chief Executive Officer Duncan Niederauer said.

Under U.S. Securities and Exchange Commission rules, the ban can be extended through Oct. 19. Investors are barred from betting on price declines for almost 980 stocks ranging from Citigroup Inc. to companies that generate only fraction of their revenue from financial activities such as AutoNation Inc.

``We are fairly confident that it will be extended for a short period of time,'' Niederauer said in a conference call with companies that was broadcast on the NYSE Web site. ``I think the SEC is fully aware that the ban we have for a select number of stocks is not a long-term solution.''

The temporary ban took effect Sept. 19 as the SEC tried to settle markets and give Congress time to shore up the industry. Senate leaders are rounding up votes for Treasury Secretary Henry Paulson's $700 billion rescue package, after the House rejected it Sept. 29. A Senate vote is planned tonight.

SEC spokesman John Nester declined to comment on the agency's plans.

A Bloomberg index that tracks shares protected from short selling has gained 2.5 percent during the ban, compared with a drop of 3.8 percent for the Standard & Poor's 500 Index.

Short sellers try to profit by betting stock prices will fall. In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference.

The SEC is considering rules that would bar traders from shorting stocks if they drop more than a certain percent, Niederauer said. Other proposals include halting trading in stocks that drop more than a certain threshold, or reviving the so-called uptick rule, which allowed short sales only if a preceding trade boosted a company's stock price, he said.

``That's the solution we think is the easiest to do and the easiest to understand,'' Niederauer said today.

BLOOMBERG