On Thursday, Wachtell, Lipton, Rosen & Katz, a law firm that represents large corporations during mergers and hedge fund attacks, urged the American regulators to limit short trades involving stocks of financial institutions.
According to Wachtell, the Securities and Exchange Commission (SEC) should take relevant measures to regulate "coordinated short attacks" by introducing a 15-day ban on short selling.
This will give controlling authorities more time to react while letting investors take a pause without sending stocks into decline. Wachtell’s co-chairman Edward D. Herlihy and partner Matthew M. Guest also emphasized that the short attacks are not linked to fundamental indicators and put the United States in danger as the economy is at "great risk."
Wachtell's suggestion may restore the ban introduced in 2008 at the beginning of the American mortgage crisis. At that time, short-selling of financial stocks was temporarily banned. That being said, the Federal Reserve Bank of New York did research, having reported that this measure had not had the hoped-for impact.
The SEC spokesman noted that the regulator was not currently contemplating banning the short-selling since stocks slumped amid concerns about the banks’ reliability.
However, U.S. officials are assessing the possibility of "market manipulation" behind recent major changes in bank stock prices according to a source familiar with the matter.
In the meantime, Better Markets, an independent nonprofit organization, expressed the view that shortists were warning markets about the problems local banks are currently facing.
“Short sellers act as a check to stock promotions and promotional management teams," said Sahm Adrangi, hedge fund manager at Kerrisdale Capital. He also added that “it is a very worthy service we provide to keep financial markets running efficiently."
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