the VOA Special English Economics Report.
Securities and Exchange Commission in the United States recently moved to
protect nineteen major financial stocks. The agency gave an emergency order to
restrict what is known as "naked" short selling of those stocks. This
is a form of stock trading that is being blamed for sharp drops in the price of
some financial stocks.
selling is a way to make money when a stock price falls. It involves borrowing
shares of stock and then selling them in the hope that the stock will lose
value. Later, the shares are purchased back and the loan is settled.
stock has lost value, the selling price will be greater than the purchase
price. The difference is profit for the investor. If the stock price rises, the
investor loses money.
selling is considered a necessary part of an efficiently operating market.
naked short selling, however, trading takes place with shares that have not yet
been borrowed -- and may never be. Naked shorting lets traders short sell large
amounts of stock that may not be available to borrow in the market. Sometimes,
lenders of securities tell several short sellers that they can borrow the same
chairman of the Securities and Exchange Commission, Christopher Cox, says naked
short selling is not out of control. But he says the order was needed as a
preventative step to help bring confidence back in financial markets. He says
the goal is to stop naked shorting that is done abusively to drive down a stock
Thursday that the agency wants to extend what he called operational protections
throughout the market.
emergency order went into effect on Monday. The ending date is this coming
Tuesday but it could be extended into August.
American Bankers Association has urged the commission to extend the
restrictions to all publicly traded banks. It says protecting only a few big
banks will cause short sellers to target smaller ones.
fifteenth order covers seventeen international banks as well as the nation's
two largest housing finance companies. Fannie Mae and Freddie Mac have lately
been the main support for the troubled housing market. But their share prices
have fallen sharply this year.
housing rescue bill on its way to becoming law includes a plan that would let
the Treasury invest in Fannie and Freddie if needed. The plan also includes a
new regulatory agency with stronger controls over those two companies.
that's the VOA Special English Economics Report, written by Mario Ritter. I'm