The number of companies temporarily protected from short selling soared from 799 to more than 900 on Monday as the two top stock exchanges added widely traded firms, including American Express axp, General Electric ge and General Motors gm, to a list that the SEC put out on Friday.
The Securities and Exchange Commission hopes to prevent a run on financial-services companies by temporarily limiting the ability of traders to bet that their shares will decline. Short sellers borrow and sell stock held by other people; they profit when they can repurchase the shares later at a lower price before returning them to the owner.
In a press release on Friday, the SEC said that "unbridled short selling is contributing to the recent, sudden price declines" in financial institutions' shares. It added that they are "particularly vulnerable to this crisis of confidence and panic selling."
The SEC halted short-selling in designated firms through Oct. 2. The restriction could be extended for a total of up to 30 days.
It also told the New York Stock Exchange and Nasdaq Stock Market that they could include other companies. "We're not trying to maintain a master list," says SEC spokesman John Heine.
That led to a flurry of activity over the weekend.
For example, the NYSE sent a blast e-mail asking members to determine whether they met seven criteria set up by the SEC. The exchange now has added 71 names, including Credit Suisse Group cs, Discover Financial Services dfs, Legg Mason lm and Moody's mco.
Monday afternoon, the NYSE added 40 companies to the morning's list of 31, with late additions including Met Life met, McGraw-Hill mhp, Ford Motor f and student loan company SLM Corp. slm "It's kind of a fluid situation," says NYSE spokesman Scott Peterson.
Nasdaq added 66 companies, including Commerce Bancshares cbsh, Fifth Third Bancorp fitb, Insure.com nsur and State Bancorp stbc.
Short sellers say that the SEC acted too hastily, as evidenced by the changes on the protected list.
"There's no real discussion about who gets on the list, or why," says Richard Baker, CEO of the Managed Funds Association, which represents hedge funds. "It doesn't make market sense."
What's more, he says that the SEC hasn't shown that short sellers contributed to recent problems at financial institutions.
"What are we solving?" Baker says. "If you think somebody's manipulating (the market), then let's go get them."
David Tice, manager of the Prudent Bear Fund, says that the exchanges may have added companies that just want to keep their stock prices up. "There are probably some requests from managers who say, 'This sounds good. Put me on the list.' "
Meanwhile, sellers are being unfairly vilified: "Short sellers have been warning about the excesses caused by Wall Street for more than a decade," Tice says.
The additions to the ban list came the same day that financial-services companies led another big slide in the stock market in which the Dow Jones industrial average fell 373 points to 11,016.