WASHINGTON - With Wall Street engulfed in crisis, the Securities and Exchange Commission is reportedly planning measures to rein in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers and which some fear could be turned against other vulnerable companies.
During emergency meetings between federal officials and investment bank executives over the weekend, SEC Chairman Christopher Cox indicated to the bankers that the agency plans in a few days to impose new permanent protections against abusive "naked" short-selling, a person familiar with the matter said yesterday.
Unlike the SEC's temporary emergency ban this summer covering naked short-selling in 19 stocks, the new measures would apply to trading in the broader market. The person spoke on condition of anonymity because the SEC actions haven't yet been officially announced.
But critics of the agency said the action comes too late to stem a tide of short-selling attacks that have been felling huge companies.
The SEC measures likely would include removing an exception for market makers in options on stocks from rules restricting naked short-selling, and a tightening of anti-fraud rules related to that activity, according to the person familiar with the matter.
Those two measures could be put in place administratively by quick approval of the SEC commissioners. Another change, reducing from 13 to five the number of days that short-sellers would have to deliver stocks after an initial failure to do so, would require a public meeting and formal vote to propose it as a new rule.
Market analysts say hedge funds and other aggressive short-sellers have been ganging up on companies such as Lehman Brothers and Merrill Lynch & Co.
Travis Larson, a spokesman for the Securities Industry and Financial Markets Association, Wall Street's biggest lobbying organization, declined to comment. Spokesmen for the Managed Funds Association, a group representing hedge funds, didn't immediately return a call seeking comment.
Investors have clamored for the SEC to institute another emergency order similar to its ban from mid-July to mid-August against naked short-selling of the stocks of mortgage finance companies Fannie Mae and Freddie Mac, and 17 large investment banks - including Lehman and Merrill.
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