SEC puts hold on short selling

NEW YORK, Sept. 19 (UPI) -- The U.S. Securities and Exchange Commission announced an immediate ban on short selling for 799 financial stocks Friday to stabilize stock prices.

The ban, put together in tandem with a short-selling ban in Britain, is in effect for 10 days, but could be extended to 30, the SEC said.

Short selling is a method of profiting on declining stocks. As such, analysts fear it may have contributed to the fall of Wall Street institution Lehman Brothers Holdings Inc. and American International Group Inc.

In short selling, traders borrow shares and sell them, betting on a price decline. If the price does go down, traders can buy stocks at a lower price then they had already sold them. If the stock price goes up, however, traders stand to take a loss.

"The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets," SEC Chairman Christopher Cox said in a statement.

By short-circuiting short selling, the SEC hopes to "restore equilibrium to markets," Cox said.

A similar moratorium announced by the Financial Services Authority in Britain is in effect until Jan. 16, 2009.