Big companies hate short-sellers. This is the apparent conclusion of a new study commissioned by NYSE Euronext, operator of the New York Stock Exchange, and conducted by Princeton, New Jersey–based Opinion Research Corp. The results, based on interviews with 438 executives from publicly listed corporations, found broad support for permanent rules that would include disclosure requirements aimed at protecting shareholders (letting them know when and to what extent the stock they hold is being shorted). The respondents also favored an outright ban under certain circumstances and said recent restrictions imposed on short-sellers didn’t last long enough.
More than half of those surveyed said short-selling should be outlawed once a stock declines more than 10 percent; 85 percent favored reinstatement of the “uptick” rule, requiring that a stock be on the rise before it can be shorted, which was abolished by the Securities and Exchange Commission in 2007. Nearly everyone said fund managers should be required to publicly disclose all short-selling activity (an effort to enforce disclosure during the ban was defeated because of objections by hedge funds).
Big-company executives argue that shorting hurts shareholders. But small-cap firms (those with capitalizations of $750 million or less), whose stocks are more vulnerable to rapid price swings, seem to have the strongest antishort sentiment, according to the poll.
Jeffrey Resnick, the U.S. group president of Opinion Research, explains that corporate leaders “want regulators and exchanges to apply more circuit breakers and disclosure to protect companies and shareholders.”
The most recent ban, imposed by the SEC on September 19 and lifted on October 8, affected financial sector stocks and came on the heels of complaints by such companies as Morgan Stanley and now-defunct Lehman Brothers Holdings about the alleged impact of short-sellers on share price. Citigroup has said it will petition lawmakers to reinstate the ban. The Financial Services Roundtable, a consortium of U.S. banks, brokerage firms and insurers, also wants renewed restrictions.
In reality shorts may not be to blame for the recent market turmoil. Short Alert Research, a North Carolina firm that tracks troubled companies, says short-selling activity has fallen by nearly 40 percent since July. And during the 19-day autumn ban, the Dow Jones industrial average shed nearly 3,000 points, led by financial sector declines.
