History of short selling in USA. "Short selling
Post# of 36729
Posted On: 02/24/2014 7:01:22 PM
History of short selling in USA.
"Short selling was banned in the U.S. due to the young country's unstable market and speculation regarding the War of 1812. The ban remained in place until the 1850s when it was repealed.
The U.S. later restricted short selling as a result of the events leading up to the Great Depression. In October 1929, the market crashed, and many people blamed stock trader Jesse Livermore. Livermore collected $100 million when shorting the stock market in 1929. Word spread and the public was outraged.
The U.S. Congress investigated the market crash of 1929, as they were concerned about reports of "bear raids" that short sellers were alleged to have run. They decided to give the newly created Securities Exchange Commission (SEC) power to regulate short selling in the Securities Exchange Act of 1934. The uptick rule was also first implemented in 1938. The rule stated that investors cannot short a stock unless the last trade was at a higher price than the previous trade. The effort was meant to slowdown the momentum of a security's decline.
A U.S. congressional hearing addressed short selling in 1989, several months after the stock market crash in October, 1987. Lawmakers wanted to look at the effects short sellers had on small companies and the need for further regulation in the markets.
The SEC updated regulation for short selling in 2005, in order to address abuses by naked short sellers with the adoption of Regulation SHO. A couple of years later, it dropped the uptick rule for all equity securities. However, the SEC still monitored naked short selling (even though naked short selling is prohibited in the U.S), and within a few years the SEC took emergency actions to limit illegal naked short selling as the mortgage crisis and credit crisis deepened and fluctuations in the market increased.
In the fall of 2008, the financial crisis had spread across the world, leading countries to implement temporary short selling bans and restrictions on financial sectors securities. These countries include the U.S., Britain, France, Germany, Switzerland, Ireland, Canada and others that followed suit."
"Short selling was banned in the U.S. due to the young country's unstable market and speculation regarding the War of 1812. The ban remained in place until the 1850s when it was repealed.
The U.S. later restricted short selling as a result of the events leading up to the Great Depression. In October 1929, the market crashed, and many people blamed stock trader Jesse Livermore. Livermore collected $100 million when shorting the stock market in 1929. Word spread and the public was outraged.
The U.S. Congress investigated the market crash of 1929, as they were concerned about reports of "bear raids" that short sellers were alleged to have run. They decided to give the newly created Securities Exchange Commission (SEC) power to regulate short selling in the Securities Exchange Act of 1934. The uptick rule was also first implemented in 1938. The rule stated that investors cannot short a stock unless the last trade was at a higher price than the previous trade. The effort was meant to slowdown the momentum of a security's decline.
A U.S. congressional hearing addressed short selling in 1989, several months after the stock market crash in October, 1987. Lawmakers wanted to look at the effects short sellers had on small companies and the need for further regulation in the markets.
The SEC updated regulation for short selling in 2005, in order to address abuses by naked short sellers with the adoption of Regulation SHO. A couple of years later, it dropped the uptick rule for all equity securities. However, the SEC still monitored naked short selling (even though naked short selling is prohibited in the U.S), and within a few years the SEC took emergency actions to limit illegal naked short selling as the mortgage crisis and credit crisis deepened and fluctuations in the market increased.
In the fall of 2008, the financial crisis had spread across the world, leading countries to implement temporary short selling bans and restrictions on financial sectors securities. These countries include the U.S., Britain, France, Germany, Switzerland, Ireland, Canada and others that followed suit."
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