Regulatory Responses To The Subprime Crisis - Short-selling Restrictions

Short-selling Restrictions

UK regulators announced a temporary ban on short-selling of financial stocks on September 18, 2008. Short-selling is a method of profiting when a stock declines in value. When large, speculative short-sale bets accumulate against a stock or other financial asset, the price can be driven down. Short sales were among the causes blamed for rapid price declines in Lehman Brother's stock price prior to its bankruptcy. On September 19 the U.S. Securities and Exchange Commission (SEC) followed by placing a temporary ban of short-selling stocks of financial institutions. In addition, the SEC made it easier for institutions to buy back shares of their institutions. The halt of short-selling in the US was set to expire on October 2, but was extended until it expired at 11:59PM EDT on October 8. The action was based on the view that short selling in a crisis market undermines confidence in financial institutions and erodes their stability.