U.S. federal securities regulators on Friday ordered a temporary ban on a stock trading practice known as short-selling that is being blamed in part for the severity of the current financial sector crisis. The move, announced on the Securities and Exchange Commission's Web site, will temporarily ban the practice in regards to nearly 800 financial stocks. Short selling involves borrowing shares in a company, selling them to a buyer and then pocketing the difference when the price falls. The process is legal, but in the current climate many believe it has pushed stocks into nosedives. In its announcement, the commission said it was acting in concert with the U.K. Financial Services Authority in taking emergency action “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. “The emergency order temporarily banning short-selling of financial stocks will restore equilibrium to markets.” The SEC on Wednesday adopted rules to permanently ban what is known as “naked” short-selling, where sellers don't even borrow the stock before selling them.
