The Mother of All Short Squeezes

[HenryTo]

SEC temporarily bans short-selling on 799 financial stocks. Hedge funds (perhaps Goldman and Morgan Stanley as well) that are opportunistic or are in cash will no doubt jump on this and initiate the "mother of all short squeezes."
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SEC bans short-selling for financials
Friday September 19, 7:07 am ET
By David Goldman, CNNMoney.com staff writer

The U.S. Securities and Exchange Commission took what it called "emergency action" on Friday and temporarily banned investors from short-selling 799 financial companies.

The temporary ban, aimed at helping restore falling stock prices that have shattered confidence in the financial markets, takes effect immediately.

Short sellers borrow stock with the aim of selling it, then buy it back at a lower price, hoping to pocket the difference. The commission said short sellers add liquidity to the markets during normal conditions, but recent unbridled short selling has contributed to the recent tailspin in the stock market.

"The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets," said SEC Chairman Christopher Cox in a statement. "The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets."

Cox said the action "would not be necessary in a well-functioning market," and is just one of many actions being taken by the government to jump-start the embattled financial markets.

The SEC also said it would temporarily ease restrictions on companies' ability to repurchase their stock, and force money managers to report their short positions in certain stocks that are not included in the 799 banned companies.

Some market observers, including top bank executives, have also blamed short sellers for the punishing declines in bank stock prices over the past few days. Critics of short sellers have argued that some had been spreading rumors about a company while "shorting" the stock in order to drive the price lower.

The ruling comes after the SEC decided Wednesday to ban the practice of so-called "naked" short-selling, in which investors short the stock without actually borrowing it.

On Thursday, Britain's Financial Services Authority also temporarily banned short-selling for financial companies. The SEC said it is consulting the FSA in the matter.

[gregf]

moon shotski for the financials.

kre is up like 25% in premarket