The Biz Flog Said Short Selling Ban was Bad Idea Weeks Ago
The Securities and Exchange Commission ended the 16-day ban on short selling Oct. 9, which has left many journalists asking if the ban actually worked to keep more banks from failing.
The staff at the Business & Media Institute's video blog, "The Biz Flog," could have told you the ban wasn't a good idea when they put together "Who's Afraid of a Big Bad Short Seller?" But, it's nice to see some members of the media questioning if the ban worked:
"While the ban was in place, other market forces pushed key indices into a rapid decline. We are going to see if that ban actually slowed the freefall or perhaps made it worse," Fox Business Network host Alexis Glick said on "Money for Breakfast," Oct. 9.
Glick went on to point out that the ban also affected companies that weren't banks:
"This time around it was a massive ban on all financial institutions and then you had the likes of CVS and GM and GE. I mean the companies on the list of just a little less than a thousand were massive, but did it really have any proper impact on the equity markets?"
Peter Cardillo, chief market economist at Avalon Partners, told Glick that the ban didn't work because, "If you look at these prices they still went down and most of these companies are still at yearly lows."
But they weren't the only ones skeptical of the effectiveness of the short selling ban. Tom Petruno, a blogger at The Los Angeles Times' "Money & Co." blog at LATimes.com put it to the numbers:
The ban took effect Sept. 19. Measured from Sept. 18 through Wednesday, the average financial stock in the Standard & Poor's 500 was down 23.5%, compared with an 18.4% drop in the S&P 500 itself. Maybe the financials would have fared worse without the ban, but the SEC's move also wreaked havoc with the market in other ways.
Petruno cited a Bloomberg piece from Oct. 9 which said that since the ban there were larger swings in the marketplace:
NYSE Euronext Chief Executive Officer Duncan Niederauer said Oct. 1 that the ban slowed stock trading and contributed to wider swings in prices. Average daily volume of shares on the New York Stock Exchange was 2.31 billion in the week the ban was adopted, compared with 1.5 billion in the 13 trading days since.
The restriction made stock trading more uneven because it "substantially" widened the gap between prices sought by buyers and sellers, Credit Suisse Group AG equity strategist Ana Avramovic wrote in a Sept. 30 report.