hedge funds plead to let short ban expire

WASHINGTON, Oct 1 (Reuters) - Lobbyists for the $2 trillion
hedge fund industry made a last ditch effort on Wednesday to
convince U.S. securities regulators to let an emergency order
prohibiting short selling in more than 950 financial firms
expire on Thursday.

"The orders have not prevented price declines of financial
institutions, volatility in the securities of these firms, or
the failure of a financial institution," said Richard Baker,
president of hedge fund lobby group Managed Funds Association.

Baker said the emergency orders have increased volatility,
reduced liquidity and abruptly halted capital-raising,
including through the issuance of convertible securities.

But a number of securities law experts expect the
Securities and Exchange Commission to extend the ban beyond
Thursday because of the current fragile state of the markets.

Under the SEC emergency measures, short selling in the
U.S.-listed financial firms stocks has been prohibited for
about two weeks.

Big money managers have also been required to disclose
their short positions in other companies to the SEC. Those
positions were submitted to the SEC on Monday and will be made
public on Oct. 13. The Managed Funds Association is urging the SEC to amend that rule so the short positions are kept secret.

The SEC's measures were implemented to help restore
equilibrium to markets rocked by bank failures and fears of
economic uncertainty. But since the rules went into effect on
Sept. 19, markets have swung wildly on hopes for a $700 billion
government bailout package for the U.S. financial system.

The measures underpinned concerns from regulators around
the world that short selling, in which an investor sells
borrowed stock in the anticipation the price will fall, has
exacerbated the decline in financial stocks.

Regulators in the United Kingdom, Australia and Canada have
imposed similar bans.

It is not known whether pleas from the MFA will be enough
to persuade SEC commissioners, who were discussing further
action on Wednesday afternoon. The short sale ban and
disclosure rules expire at 11:59 p.m. EDT on Thursday (0359 GMT
on Friday) and can only last a total of 30 days.

Another set of emergency rules designed to crack down on
abusive short selling are set to expire at 11:59 p.m. EDT on
Wednesday (0359 GMT on Thursday).

Those rules include one that makes it fraudulent for short
sellers to deceive broker-dealers about their intention or
ability to deliver securities in time for settlement.