S.E.C. Extends Short-Sale Limits

New York Times (07/30/08) P. C5
Abandoning an earlier expiration date to give itself more time to develop broader rules, the Securities and Exchange Commission (SEC) said it will not lift its ban on "naked" short sales until Aug. 12. The agency issued a temporary emergency directive, effective July 21, governing how short sales of Fannie Mae and Freddie Mac stock--as well as that of 17 other brokerage firms with access to the Federal Reserve's discount window--may be executed. The order mandates that traders make arrangements to borrow shares prior to engaging in short sales. Traditional short sales involve traders borrowing shares and selling them, then repurchasing the shares, repaying the loan and turning a profit if prices fall. Naked short sales have generated concerns that manipulative traders could push down prices with orders to unload shares that they have not borrowed.