The Securities and Exchange Commission (SEC) extended its July 15 order to bar naked short selling in the securities of financial institutions to which the Federal Reserve has granted temporary access to liquidity facilities on an emergency basis. The extended order will be in effect until Aug. 12, 2008. The SEC says it will not extend the order beyond that date.

The SEC says its decision to extend the order for a second 10-day period will permit its staff to collect and analyze additional data on the order’s impact and effect. The commission plans to consider a rule blocking abusive naked short selling in the entire market, while allowing legitimate short selling that is essential to the markets’ operation.

ABA Unhappy with Rule

The American Bankers Association (ABA) was not pleased by the SEC action. “We are disappointed and deeply concerned about the decision . . . to extend the emergency order banning the short selling of 19 financial stocks without including all publicly-traded banks,” ABA said.

“ABA is concerned that those market participants that are actively involved in executing short selling strategies will focus their naked short selling strategies on those publicly traded banks and bank holding companies not covered by the order. As the Commission is aware, it would be an understatement to say that short interest in financial services companies has greatly increased over the past year. Without such action to include bank stocks in the ban, the potential exists that the Commission’s action could backfire and disrupt an industry that is essential to the functioning of the economy.

“We hope that the Commission will revisit the matter following the expiration of the emergency order on August 12 when it proceeds to the consideration of rulemaking.”