Traders who have sought to profit from the financial crisis by betting against bank stocks were attacked on two continents Thursday.
Regulators in Britain announced new rules to bar short selling and the U.S. Securities and Exchange Commission scrambled to formulate an emergency rule to force major investors to disclose their short sales daily, and considered a ban.
Short selling — a bet that a stock price will fall — is the practice of selling stock without owning it, hoping to buy it later at a lower price and thus make a profit. It has often been blamed for declining prices in times of market stress, but the level of anger has intensified as the U.S. government has been forced to bail out major financial institutions and as the leaders of some investment banks have asked for action against short sellers to keep their shares from plunging further.
Both the SEC and the New York state attorney general promised to intensify investigations of short-selling abuses.
“They are like looters after a hurricane,” said Andrew Cuomo, the attorney general. “If you pass a rumor in a normal marketplace, people are calm, they check it out, they do their due diligence. When you get the market in this frenzied state and they are on pins and needles, any false information is much more impactful.”
Sen. John McCain, the Republican presidential candidate, said the SEC had “kept in place trading rules that let speculators and hedge funds turn our markets into a casino” and said that the SEC’s chairman, Christopher Cox, had “betrayed the public’s trust.”
Speaking at a rally in Cedar Rapids, Iowa, McCain said, “If I were president today, I would fire him.”
The White House immediately said it supported Cox, who has said he will resign at the end of the Bush administration. Cox said he had moved against short sellers and was doing all he could to stem the financial crisis.
“Now is not the time for those of us in the trenches to be distracted by the ebb and flow of the current election campaign,” Cox said in a statement released by the commission. “It is precisely the wrong moment for a change in leadership that inevitably would disrupt the work of the SEC at just the wrong time.”