Short-selling rules back in play (UPDATED)

Bloomberg sayeth:

The U.S. Securities and Exchange Commission stiffened rules against manipulative short-selling after a market rout pushed American International Group Inc. to the brink of collapse and triggered Lehman Brothers Holdings Inc.’s bankruptcy.

The SEC adopted two regulations today forcing traders and brokers to close out short sales on all stocks, amid concern investors are driving down prices by flooding markets with sell orders. A third rule makes it a securities fraud when sellers deceive brokers about delivering borrowed shares to buyers.

“These several actions today make it crystal clear that the SEC has zero tolerance for abusive” short-selling, SEC Chairman Christopher Cox said in a statement on the rules that take effect tomorrow.

Short-selling now caused Lehman’s and AIG’s collapses? Shame on Bloomberg. Mr. Cox might also have noted that the shares of other firms were often used as bonuses, and they just couldn’t have bankers’ comp under water (as said bankers noted at last week’s meeting).

UPDATE: CEOs of investment banks talking their book (emphasis mine)…

Seeking to avoid the kind fate that led Lehman and Bear Stearns to collapse, John J. Mack, Morgan Stanley’s chief executive, made an unsuccessful effort on Tuesday evening to persuade Citigroup’s chief executive, Vikram S. Pandit, to enter into a combination, according to people briefed on the talks.

“We need a merger partner or we’re not going to make it,” Mr. Mack told Mr. Pandit, according to two people briefed on the talks. Mr. Pandit, a former senior investment banker at Morgan Stanley, said Citigroup was not interested.

When you’re making statements like that, short sellers or no short sellers, your stock is headed for the tank.

UPDATE 2: Hmm…

Editors’ Note [NYT]

An earlier version of this article cited two sources who were said to have been briefed on a conversation in which John J. Mack, chief executive of Morgan Stanley, had told Vikrim S. Pandit, Citigroup’s chief executive, that “we need a merger partner or we’re not going to make it.” On Thursday, Morgan Stanley vigorously denied that Mr. Mack had made the comment, as did Citigroup, which had declined to comment on Wednesday.

The Times’s two sources have since clarified their comments, saying that because they were not present during the discussions, they could not confirm that Mr. Mack had in fact made the statement. The Times should have asked Morgan Stanley for comment and should not have used the quotation without doing more to verify the sources’ version of events.

Maybe the SEC should be regulating the media as well as the market.

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