October 06, 2008
The Short Life of the Short-Selling Ban
Posted by Christine Hurt

With the bailout bill now signed by the President, the temporary ban on short-selling will now end on Wednesday, October 8, not Friday, October 17.  I will leave it to the finance scholars to begin the event studies to see what happened during the ban.  One interesting note, however.  By last week, almost 1000 companies were listed as protected under the SEC's temporary ban.  While speaking at the University of Maryland School of Law's Seventh Annual Business Law Conference (thanks, Lisa!), I wrote down a list of nonfinancial companies that a speaker claimed were on the ban list.  Mark Cicerelli, an investment analyst at a hedge fund, remarked that there was no reason for certain firms to be on the list, including Moddy's, IBM, CVS and Autozone.  Now, whether you think the ban was a stupid idea or just a silly one, it just be somehow related to the credit crisis, so I was curious as to why these companies were on the list.

So, here's the list.  Remember that the SEC did not vet the list much, but instead allowed firms to self-identify as financial firms.  First of all, Autozone isn't on the list.  Autonation is.  I can believe that Autonation's financing arm is a large enough part of its balance sheet as to make the firm as much of a credit company as the other car company on the list (General Motors and Ford Motor Company are also on the list.)  CVS Caremark is on the list, but I'm not sure that this firm is merely a pharmacy.  The company also seems to have clinics and offer prescription management services, so extensions of credit may also be part of its business plan.  I'm sure this is also probably true about IBM.

I'm still stumped as to why Moody's is on the list.  Standard & Poor's is owned by McGraw-Hill, and it's on the list, too.  Thoughts?  I understand that as companies that issued ratings on financial firms and sold their analytical services, their stock prices are in dire danger of going down during this financial crisis.  But I don't think the list was just meant to encompass any firm whose stock is sensitive to the crisis.

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