On Friday 19th September, the SEC imposed a temporary ban on short selling in an elite group of 799 US financial stocks. The SEC also eased stock buy back rules which previously restricted companies ability to buy back shares at the market open and close. The moves were designed to stem the steep decline in stock prices over the previous two days. The SEC’s desperate measures helped fuel one of the most dramatic short covering rally in recent times. Chris Cox must have hoped that the old saying, “Desperate times call for desperate measures”, would justify the SEC’s unfortunate decision to tamper with the workings of the free market.
The SEC’s traditional role is to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities. In its recent moves the SEC has dramatically reversed its role and instead aided one group of market participants in artificially propping up prices in ailing financial companies. This is tantamount to ramping the markets.
The SEC is effectively changing the rules in mid game for market participants. In particular the new rules have benefited the bulls tremendously while severely shackling the short sellers. You can’t have a free market when the regulatory agency so blatantly tilt the playing field in favor of a particular group of players when the game is not going their way. I don’t know how the rest of the world sees this but from my corner here it looks very much like blatant cheating! It is sad that the USA no longer practice the free market principles which they had been championing.