SEC makes ‘naked’ short-selling rule permanent

Federal regulators Monday made permanent an emergency rule aimed at reducing abusive short-selling, put in at the height of last fall’s market turmoil.

The Securities and Exchange Commission announced that it took the action on the rule targeting “naked” short-selling, which was due to expire Friday.

Short-sellers bet against a stock. They generally borrow a company’s shares, sell them and then buy them when the stock falls and return them to the lender — pocketing the difference in price.

“Naked” short-selling occurs when sellers don’t even borrow the shares before selling them and then look to cover positions sometime after the sale.

The SEC rule includes a requirement that brokers must promptly buy or borrow securities to deliver on a short sale.

At the same time, the SEC has been considering several new approaches to reining in rushes of regular short-selling that also can cause dramatic plunges in stock prices.

Investors and lawmakers have been clamoring for the SEC to put new brakes on trading moves they say worsened the market’s downturn starting last fall.

In addition to making the “naked” short-selling rule permanent, the SEC is working with major stock exchanges to make data on short-sale transactions and volumes publicly available through exchange Web sites.

It will result in “a substantial increase” over the amount of information currently required, the agency said.