WASHINGTON — A government order expired Tuesday that temporarily banned a certain kind of short-selling of the stocks of mortgage-finance companies Fannie Mae and Freddie Mac and 17 large investment banks.
The companies’ shares have stabilized since the ban took effect July 21. The Securities and Exchange Commission says its order helped prevent stock manipulation and that regulators will be able to analyze data to gauge its effectiveness. But some experts say that may be difficult to determine.
The SEC instituted the emergency ban last month after a precipitous slide in the shares of Fannie and Freddie, the government-sponsored companies that together hold or guarantee more than $5 trillion in home mortgages.
The SEC on July 29 extended the ban until 11:59 p.m. EDT Tuesday, saying it would not be extended further.
By law, the order cannot be extended beyond 30 calendar days from its effective date.
The agency plans to consider new rules to provide additional protections against abusive “naked” short-selling in the broader market of public companies, while allowing legitimate short-selling.
“Naked” short-selling occurs when sellers don’t even borrow the shares before selling them and then look to cover positions immediately after the sale. The SEC’s temporary order required short-sellers to borrow shares before selling them.
SEC Chairman Christopher Cox has said the order helped prevent potential “distort and short” manipulation of stocks, which occurs when rumors and misinformation are used to drive down the price of a stock that has been sold short.
