New shorting rules plotted by SEC

16 September 2008

America's financial regulator is planning tough new sanctions against short sellers, Bloomberg reports.

An anonymous insider told the news agency that rules which oblige stock brokers to deliver shorted shares will be strengthened by the Securities and Exchange Commission (SEC).

The broker practice of deliberately making unclear whether or not they will deliver shares to buyers is also likely to be classified as securities fraud.

However, the insider added that these plans had yet to be fixed, and were still being discussed.

The rules are expected to come in to effect as the markets suffer on new uncertainty about large financial firms.

Both Lehman Brothers and Merrill Lynch announced that they will go out of business yesterday, through bankruptcy and takeover respectively.

Short sellers have been partially blamed for the erosion of stock value among banks over recent months - and also for the collapse of Bear Stearns in March.

The SEC is thought to have been discussing toughening the rules for some time.

When contacted by the news agency, the regulator declined to comment.

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