Citi urges short-selling ban

The Straits Times
Nov 21, 2008 | 8:47 AM
Citi urges short-selling ban

WASHINGTON/NEW YORK - CITIGROUP Inc has asked the US Securities and Exchange Commission to bring back a ban on short-selling financial stocks, a source familiar with the matter told Reuters on Thursday.

Citi, whose shares lost more than a quarter of their value on Thursday and are now hovering around their lowest levels since 1994, has also approached members of Congress to discuss its concerns about short-selling, the source said, speaking on condition of anonymity.

The Financial Services Roundtable, an industry group, is also pressing for regulators to temporarily bring back the emergency ban that ended on October 8.

The group, which represents most of the largest banks, brokerages, asset managers, and insurance companies in the United States, has been talking to securities regulators and others about reinstating the ban since it was lifted, said Mr Scott Talbott, senior vice-president in government affairs in Washington, DC.

Those efforts have increased in recent days as financial stocks have plummeted, Mr Talbott said.

'When conditions warrant, you want to prevent a downward spiral for shares. Investors are acting on panic now,' he said.

If financial stocks were reaching irrationally high levels, the group would seek measures to rein them in, Mr Talbott said.

'We want markets to operate efficiently,' he added.

Short-sellers borrow stock they expect will fall in price in the hope of repaying the loans for less and pocketing the difference. They have been blamed by some corporate executives for driving down the price of their companies' stock.

Mr John Nester, a spokesman for the SEC, declined to comment.

The agency separately announced on Thursday that it will hold a teleconference of international securities regulators next week to discuss short selling, among other topics.

The effectiveness of the SEC's last short-selling ban, which started on Sept 19, is up for debate.

US financial stocks broadly performed worse than the market from Sept 19 through Oct 8, the period of the short-selling ban.

S3 Matching Technologies, a market data firm, said it found no statistically significant differences between stocks covered under the ban and those that were not.

But financial stocks' performance could have been even worse if short selling had been allowed, Mr Talbott said.

The Financial Services Roundtable does not oppose short selling, or profiting from expected declines in share prices by selling borrowed shares and buying them back later.

'Short selling plays a role in the market. We need people to go long as well as to go short,' Mr Talbott said, adding that current circumstances are extraordinary.

The SEC took the emergency action in September amid plunging share prices and a loss of investor confidence that pushed Lehman Brothers into bankruptcy.

The agency temporarily banned the short sale of nearly 800 companies with business in financial services, a list that eventually swelled to more than 950. Existing short positions were allowed to be maintained.

The temporary ban was opposed by the trillion-dollar hedge fund industry. -- THOMSON REUTERS