Ban On Short Sell

798 Words2 Pages

On September 19, 2008 David Goldman, a staff writer for CNNMoney.com, reported that The U.S. Securities and Exchange Commission (SEC) placed a temporary ban on the short selling of financial companies’ securities. The action was taken as a defensive maneuver to help stabilize trading in the 799 financial companies named in the ban. The SEC reasoned that short sellers where manipulating the stock prices of the named companies and that banning the practice of short selling would restore regularity to the markets (Goldman, 2008). The practice of short selling securities, under normal market conditions, is not an illegal practice and actually promotes a more efficient market place (Staley, 1996). With that in mind, where does the SEC, under the direction of Christopher Cox, derive the authority to place such a ban and enforce it? The answer to that question is found in the document that provides the current frame work for the legal environment of the United States of America, the U.S. Constitution. Article I of the U.S. Constitution grants legislative power to Congress. Court precedent holds that Article I, section 8, gives Congress the power to create administrative agencies that have the power to establish and enforce laws. This ability to entrust certain powers to administrative agencies is known as the delegation doctrine (Miller & Cross, 2007). After years of depression and following the stock market crash of 1929, Congress used this delegation doctrine to form the SEC as an independent administrative agency. The Securities Exchange ACT of 1934 laid the frame work for the new agency. The SEC was formed to regulate the U.S. stock market and to prevent abuse and market manipulation and to protect the public from deceitful practices (Soderquist & Gabaldon, 2006). The power that the SEC has is derived from the Act of 1934. Section 12 (k) (2) (A) of the Act states: “The Commission, in an emergency, may by order summarily take such action to alter, supplement, suspend, or impose requirements or restrictions with respect to any matter or action subject to regulation by the Commission or a self-regulatory organization under this title, as the Commission determines is necessary in the public interest and for the protection of investors.” (University of Cincinnati College of Law, 2008) In the SEC’s official press release on September 19, 2008, they cited this specific section of the Act of 1934 as the source of its authority to carry out the ban.

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