WASHINGTON — The U.S. Securities and Exchange Commission will limit the ability of traders to bet on a drop in shares of brokerage firms, Freddie Mac and Fannie Mae as part of a crackdown on stock manipulation, the agency’s chairman said.
Christopher Cox told the Senate Banking Committee on Tuesday that the agency will require traders to hold shares of the two mortgage buyers and the brokerages before they execute a short sale. The emergency order, to be in effect for 30 days, will bar the practice called naked short selling, in which traders avoid the financial cost of borrowing shares when betting they’ll fall.
Cox said the SEC will draft rules “to address these same issues across the entire market.” Hedge-fund manager William Ackman, who oversees $6 billion at Pershing Square Capital Management, is among those betting that shares of Fannie Mae and Freddie Mac will fall. There’s no indication he is engaging in naked short selling.
The SEC is reluctant to curb short sales “because it would require a major retooling of the plumbing of Wall Street,” said James Angel, a finance professor at Georgetown University studying short sales. “It’s only when the big Wall Street firms are threatened that the SEC does something about it.”
