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Financial regulators in the U.S. and U.K., attorneys general in New York, Texas and Connecticut, and the three largest U.S. pension funds are cracking down on short sellers in the wake of the collapse of Lehman Brothers Holdings Inc. and American International Group Inc., according to a report filed by Bloomberg News late Thursday evening.
``You have to enforce the rules with regards to short selling,'' said Mario Gabelli, who oversees about $28 billion as chairman and chief executive officer of Gamco Investors Inc. in Rye, New York. ``Shorts were running amok.''
UK regulators had already stopped short sellers.
From Bloomberg:
The U.K. markets regulator put a ban on short selling of financial shares for the rest of the year after HBOS Plc, the country's biggest mortgage lender, lost 37 percent of its market value over three days.
The Financial Services Authority will also require daily disclosure of existing short positions in financial companies of more than 0.25 percent, the London-based regulator said in a statement today. The rules will remain in effect until Jan. 16.
The measures were introduced after politicians and some investors blamed short-sellers for HBOS's plunge before it agreed to a 10.4 billion-pound ($18.9 billion) takeover by Lloyds TSB Group Plc. The U.S. Securities and Exchange Commission also moved to tighten rules on short-selling, saying that it may require hedge funds to disclose their positions.
``This is the most interventionist action in the U.K. economy that we've seen for quite some time,'' said Chris Brennan, a regulatory lawyer at London-based Barlow Lyde & Gilbert and a former FSA official. ``It's surreal.''
The emergency measures came with approval from the government.
``I have discussed this with the FSA and welcome their decisive action,'' said Chancellor of the Exchequer Alistair Darling. ``It is the right thing to do in the current market conditions and in the interests of financial stability.''
It is believed that short sellers may be spreading false information across the Internet.
The news comes at a time when the Standard & Poor's 500 Index futures surged 3 percent after Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke pledged late today to work on a comprehensive plan to alleviate the credit crisis and the Securities and Exchange Commission moved to ban short sales of Wall Street brokerages.
