The U.S. Securities and Exchange Commission issued a statement concerning short selling, yesterday, announcing an extension of the temporary prohibition of short selling in financial companies. According to the Commission:

[T]here are circumstances in which short selling can be used as a tool to mislead the market. For example, short selling can be used in a downward manipulation whereby a manipulator sells the shares of a company short and then spreads lies about a company’s negative prospects. This harms issuers and investors as well as the integrity of the market. This kind of manipulative activity is particularly problematic in the midst of a loss in market confidence. For example, in the context of a credit crisis where financial institutions face liquidity challenges, but are otherwise solvent, a decrease in their share price induced by short selling may lead to further credit tightening for these entities, possibly resulting in loss of confidence in these institutions.

The Commission did not say whether it had evidence that short sellers were spreading lies.

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