An emergency SEC rule that went into effect today prohibits short selling of the publicly traded securities of 799 financial firms. This rule coincides with a similar rule adopted by the U.K. Financial Services Authority yesterday.
As the SEC explains in its press release:
“Under normal market conditions, short selling contributes to price efficiency and adds liquidity to the markets. At present, it appears that unbridled short selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation. Financial institutions are particularly vulnerable to this crisis of confidence and panic selling because they depend on the confidence of their trading counterparties in the conduct of their core business.”
The rule will remain in place through October 2, 2008.