Following the passage of the $700 billion rescue bill by Congress and subsequent signing of The Emergency Economic Stabilization Act of 2008 (H.R. 1424) by U.S. President George Bush, the Securities and Exchange Commission on Friday, in an announcement, revoked the emergency order prohibiting short selling of shares of common stock of financial institutions, effective 11:59 p.m ET of October 8, 2008.
Aimed at stabilizing the market and to unwind the nervousness among investors, SEC issued a temporary ban on short sales of 799 financial stocks on Friday, September 19, 2008. The Commission also considered prohibiting short selling in all other publicly traded companies.
Short selling involves borrowing a company's shares followed by selling in the exchange controlled market and book the difference when price of equity falls. It is a legitimate way of trading allowed with the intention of creating an efficient and a transparent system offering more liquidity thereby inviting more capital from potential investors.
Unfortunately, the recent financial crisis propelled short selling to unjustifiable levels causing widespread value erosion among all sectors and financial stocks in particular. Leaders of major financial institutions called for ban on short selling soon after the buy out of Merrill Lynch by Bank of America, collapse of Lehman Brothers and bail out of AIG, as concern about protecting the share value of healthy companies mounted.
Hurt by the criticism, short sellers, mostly hedge funds and private investment companies, said that they were the first to caution about the risky mortgage lending practices that led to the current financial crisis.
With support from White House, Christopher Cox, 28th Chairman of SEC proceeded to ban short selling, a move which he justified to decipher the financial crisis.
However, with no real practical solution for the financial crisis being put forward along with the delays in passing the bail out package, the market shuddered the ban and continued on its volatile highway.
Realizing that bail out was the only alternative that can temporarily create a cool off and give time to formulate firm strategy, the Congress passed the bail out plan after considering all other probabilities to sneak out of the financial trauma.
In lieu of this, SEC, anticipating a relatively better and safe trading week, in an announcement, unchained the short sellers to allow U.S. market to continue to remain as the most free, healthy and liquid capital market in the world.
With the above announcement in place, short sellers and market in general is expected to continue in the old fashioned way from October 9.
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April 24, 2026 15:15 ET Economics news flow was relatively light this week even as the conflict in the Middle East continued, raising concerns for policymakers. In the U.S., spending data, initial jobless claims and pending home sales were the highlights. Business confidence in the biggest euro area economy was in focus in Europe. Inflation data from Japan gained attention in Asia.