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Experts differ on effect of short-selling ban

USA Today – Markets braced for Wednesday night’s scheduled expiration of the ban on short sales of more than 900 financial stocks, as investment analysts and advisers gave differing predictions on the potential impact.

The emergency ban is set to expire just before midnight, 13 trading days after the Securities and Exchange Commission imposed it with the aim of halting trading the agency said appeared to be "contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation."

The expiration is timed to take effect three trading days after President Bush signed the $700 billion financial system bailout approved by Congress last week. Although the SEC retained authority to extend the ban through Oct. 17, the agency announced no changes Tuesday.

The ban has temporarily halted a legal practice in which traders borrow shares and sell them in the hope of profiting by replacing the borrowed shares with equivalents bought later in the market at a lower price. But it’s illegal to spread rumors or misinformation about a company in a bid to drive down its share price while short selling that firm’s stock.

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