For the first time in over a decade, all five members of the U.S. Securities and Exchange Commission (SEC) are testifying together in a hearing today at 2 p.m. EDT. The commission, summoned by Congress, is expected to defend itself against accusations that its focus has shifted toward business interests and away from the individual investors, and to respond to public outcry surrounding continual short selling.SEC Chairman Christopher Cox and Commissioners Paul S. Atkins, Roel C. Campos, Annette L. Nazareth, and Kathleen L. Casey are set to gather before the House Committee on Financial Services regarding numerous regulatory issues.
An issue expected to be addressed in the hearing is the concern surrounding foul short selling and unrest among investors.
“The commission is eager to discuss its investor protection efforts – past, present and future,” John Nester, SEC spokesman, said in a statement. “We have a great investor protection story to tell and we’re happy to tell it.”
Last week the commission voted unanimously to adopt amendments to build muscle for Rule 105 of Regulation M, which helps prevent abusive short selling and market manipulation. The rule ensures that offering prices are set by the natural wave of supply and demand for the securities being offered, rather than by a manipulative hand.
According to a press release regarding the vote, the amendments replace the rule’s current limitation on covering the short sales in the offering with a prohibition on purchasing in the offering after a short sale in the securities.
The change was in response to continual non-compliance with Rule 105. Under the new rule, if a person sells short during the period prior to pricing, that person will no longer be able to purchase the offered security. However, to ensure the rule does not “unduly” limit the possible purchasers in follow-on and secondary offerings a restricted period short seller is permitted to participate in an offering if they make a legitimate purchase prior to the offering.
And its not just short selling at the table today – the SEC will discuss a variety of regulation and policy issues, including the pending securities lawsuit before the Supreme Court in which commissioners sided with investors still fighting the Enron scandal. The 3 to 2 vote was stomped by the Bush administration declining to side with investors in lawsuits involving investment banks, attorneys or vendors entwined in “fraudulent” activity.
