Traders didn't place immediate bearish stock bets on hundreds of financial firms after the Securities and Exchange Commission's emergency ban on short selling them expired last week, a new data analysis suggests.
Borrowing in the securities lending market, a short-selling indicator, declined 2.3% for the financial companies on Thursday, the first trading day after the restriction ended, according to SunGard Astec Analytics, a research firm that specializes in financial markets information.
The drop extended an overall 41% drop in share-borrowing involving the more than 900 financial firms for which the SEC banned short selling from Sept. 19 to Oct. 8, the SunGard analysis found.
Overall, share-borrowing dropped Thursday for more than half of the firms on the SEC protected list, while 24% experienced increases, and 20% saw no change, the data showed. Data for Friday were not yet available.
Short sellers borrow shares, often from public pension funds or other institutional managers, then sell them with the hope of profiting by replacing the borrowed shares with equivalents bought afterward in the market at a lower price.
"The trend did not reverse on a dime" on Thursday, said Aaron Gerdeman, a SunGard product manager.
Brian Traquair, the research firm's president of capital markets, said the one-day snapshot suggests "the majority of the pressure on those stocks was just pure sales pressure, not short selling."
The SEC temporarily banned short selling, a common trading tactic, amid allegations that some traders illegally spread misinformation or rumors to drive down the shares of financial firms they sold short. The SEC is also investigating short selling of financial firms' stocks since midsummer.
Led by investment bank Morgan Stanley, financial sector officials have complained that their stocks were battered by improper short selling in recent weeks. The American Bankers Association and the Financial Services Roundtable unsuccessfully pressed the SEC to extend the ban last week.
Sally Miller, a senior vice president of the banking group, urged the SEC to "closely monitor the situation and … reinstate the emergency order or issue a temporary interim rule banning short selling in financial stocks."
U.S. stock markets may ask the SEC to impose a three-day ban on short sales for individual stocks that drop 20% or more, Bloomberg and Reuters reported. Representatives of the New York Stock Exchange, Nasdaq and the SEC declined to comment.