Sunday, October 5, 2008

Shorting Financial Stocks: Back in Town

In the middle of September, the SEC issued an emergency order, originally designed only to last two weeks, that banned all short-selling in the stock of financial services companies.

All short selling. This wasn't an order aimed at the "abuse" of short selling in one way or another. It prohibited the practice as a whole.

Two weeks later, the SEC extended that order until October 17 -- the end of the full 30 day period allowed for its "emergency" decrees under statute.

Fortunately (for those of us who think the ban was a stupid idea in the first place) the extension contained something of a loophole. The ban was re-jiggered to end at the earlier of two events: the expiration of the 30 days, or the passage of three business days from enactment of the Wall Street bail-out bill.

That bill -- another really stupid idea, but let that pass for now -- became law with the President's signature on Friday. Thus, the brief backbencher's revolt that had broken out Monday proved a cheering but brief incident.

Anyway, with the bail-out bill signed, the emergency order will expire Wednesday. Authentic price discovery is back. A small silver lining to the cloud of dumb political and bad financial news in recent days and weeks.

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