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The Dow rallied 250 points shortly after 1 pm ET when the UK government announced they were banning short selling in financial stocks until January, and would require hedge funds to reveal their short positions.
While most stock traders here in the U.S. are in favor of some sort of "brake" on short selling, most are not in favor of an outright ban on it. If we ban short selling, should we ban long buying too? Why not a bank holiday, and just close the markets?
There's clearly growing pressure to do the same thing here in the U.S. But perhaps other moves that are less drastic would be sufficient:
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1) The SEC has made it clear they are conducting house-to-house searches of hedge funds to determine if there are any trading abuses; they are also seeking approval to force the funds to report their short positions regularly.
2) expect more "investigations": the New York Attorney General said they have started a "probe" of short selling in AIG, [AIG
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] Morgan Stanley, and Lehman [LEH
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].
3) The California Public Employees' Retirement System, the nation's largest pension fund, has stopped lending shares of Goldman Sachs[GS
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] and Morgan Stanley [MS
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] for the purpose of shorting the stocks. They followed the California State Teachers' Retirement System, which also stopped lending the shares.
4) most traders also support bringing back the rule that requires that traders seeking to short a stock can only do it on a plus tick (a trade where the stock moves up), which is supposed to make it more difficult to quickly amass a short position.
Questions? Comments?
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