The US Securities and Exchange Commission has said the ban on short selling would expire on October 8, following the enactment of Emergency Economic Stabilisation Act to tackle the ongoing financial turmoil.
The Act signed by American President George Bush allows the administration spend USD 700-billion to rescue financial institutions by buying their distressed mortgage assets.
On October 1, SEC had extended the ban on short selling to allow time for the rescue bill to be enacted into a legislation.
With the President signing the Emergency Economic Stabilisation Act of 2008, aimed at stemming the credit crisis, SEC said in a statement on Friday, the order prohibits persons from short selling the securities of financial institutions would expire on October 8.
The much-awaited $700-billion bailout package was passed by the House of Representatives with a majority of 263 votes while there were 171 votes against the rescue plan. Later, the bill was made into an Act by the American President.
In September, the American regulator had taken a temporary emergency action to prohibit short selling in financial companies to protect the integrity and quality of the securities market as well as strengthen investor confidence.
Short selling means borrowing a security from a broker and selling it with the understanding it must be bought back and returned to the broker. Investors use this to make profit from falling price of the stock.
Under normal market conditions, short selling contributes to price efficiency and adds liquidity to markets. At present, it appears that unbridled short-selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation.
