New SEC rule is a short-selling speed bump

I stridently opposed restrictions on short-selling last April, but added this caveat:

I agree some regulation [ … kills me to write that] in the financial and public sector needs to come to pass, but this accomplishes nothing aside from cheap public relations. If the markets are so weak selling short is capable of breaking them, maybe they should be broken.

Not too sure this move by the SEC is the answer, but it does seem measured and could well fall under the “some financial regulation is necessary” rubric I created in the previous blog post. I don’t like the idea the SEC is stifling the open market, but given the amount of pure jacking around the market has endured over the last two years, curbing “spiraling sales sprees” is probably not that bad an idea. It’s tough to remain a market purist in the face of market failure and the reality of ongoing market tinkering.

From the second link:

Federal regulators on Wednesday imposed new curbs on the practice of short-selling, hoping to prevent spiraling sales sprees in a stock that can stoke market turmoil.

The Securities and Exchange Commission, divided along party lines, voted 3-2 at a public meeting to adopt new rules.

The rules put in a so-called “circuit breaker” for stock prices, restricting for the rest of a trading session and the next one any short-selling of a stock that has dropped 10 percent or more.

Short-sellers bet against a stock, in a practice that is legal and widely used on Wall Street. They borrow a company’s shares, sell them and then buy them when the stock falls and return them to the lender — pocketing the difference in price.

The SEC move followed months of wrestling with the controversial issue. The SEC asked for public comment last April on several alternative approaches to restraining short-selling, and a bipartisan group of senators have been pushing the agency to act or face legislation.

The agency got more than 4,300 comments on the issue.

Is the Sarbanes-Oxley Act on its last legs?

Looks like it. In this topsy-turvy political world Sarbox was ushered in by a GOP-controlled Congress and is being systematically gutted by a Democratic Congress. Of course one the unintended consequences of Sarbox was an untenable burden on small business. Wall Street was going to motor along, accounting firms were going to bank and Main Street was going to take it on the chin once again.

From the link:

The House Financial Services Committee has approved an amendment to the Investor Protection Act of 2009 to allow most companies to never comply with the law, and mandating a study to see whether it would be a good idea to exempt additional companies as well.

Some veterans of past reform efforts were left sputtering with rage. “That the Democratic Party is the vehicle for overturning the most pro-investor legislation in the past 25 years is deeply disturbing,” said Arthur Levitt, a Democrat who was chairman of the Securities and Exchange Commission under former President Clinton. “Anyone who votes for this will bear the investors’ mark of Cain.”

Those who favored the amendment saw it differently. They were simply out to help small businesses, which would be burdened by having to report on whether they maintained acceptable financial controls, and to have auditors check on whether those controls worked.

There are other threats to Sarbanes-Oxley as well.

SEC and Fed want to toughen rules

This AccountantsWorld.com article outlines an effort by the SEC and the Federal Reserve to press Congress for additional regulatory and supervisory powers.

From the link:

At a Congressional hearing on how to modernize financial regulation, the S.E.C. and the Fed laid out similar, if somewhat competing, visions for a new regime capable of monitoring commercial and investment banks to ensure they remain financially sound in order to prevent another credit crisis.

 

Both the S.E.C. chairman, Christopher Cox, and the New York Federal Reserve Bank president, Timothy F. Geithner, said that the current patchwork of regulatory agencies, much of which dates back to the Depression of the 1930s, deserved part of the blame for the yearlong financial market turmoil.

But Mr. Cox said his agency should oversee investment banks, while Mr. Geithner said the Fed must have a direct supervisory role over any firms that borrow from the central bank.

”It’s very important that we have a role in consolidated supervision of these institutions because you will not have good judgments made by this central bank, this Federal Reserve, in the future unless we have the direct knowledge that comes with supervision,” Mr. Geithner told the House Financial Services Committee.