U.S. short sale ban falls short on some names

By Nick Carey

CHICAGO (Reuters) - The corporate world has plenty of lists -- the richest, the most admired, the most innovative -- but few have been quite so avidly perused as Washington's list of "banned shorts" published early on Friday.

Banks, fund managers, brokers, and other companies with finance arms of various kinds were on the list of 799 financial stocks on which short-selling was banned until October 2.

The only problem: Some major firms with huge financial operations were left off the list, an indication of how much of an emergency it was when the U.S. Securities and Exchange Commission put together the measure in an attempt to restore confidence to U.S. financial markets.

The omitted companies quickly began lobbying to get added -- which was not surprising as financial stocks on the list soared, led by banks such as Citigroup, up 24 percent, and JPMorgan Chase gaining almost 17 percent.

Among them those who didn't make the list were credit card company American Express Co, commercial lender CIT Group Inc, and conglomerate General Electric Co, which has a huge financial arm that generates about half its profits.

There didn't appear to be much rhyme or reason behind some of the inclusions or exclusions. Included, for example, was the company that runs the New York Stock Exchange, NYSE Euronext, and insurer American International Group Inc, which this week was rescued by the U.S. government.

The SEC did not respond to requests for comment on why specific companies were left off. However, an SEC spokesman did say that "the Commission is willing to consider the addition of comparable financial companies to the list as appropriate."

And an industry source said the SEC will revise the list, as in its haste to issue the emergency order it left some companies off. Indeed, in the announcement that lists the names, the SEC says the list was "prepared on a best efforts basis."

A spokesman for CIT said the company had made a "formal request" to be put on the SEC's list, while a source close to GE said the company was "in discussions" with the regulator on being included.

Regulators around the world had introduced the curbs amid concerns that short sellers were crushing the stocks of major financial names and driving global stock markets down.

Short-selling involves an investor selling stock in anticipation the price will fall -- in which case the investor can buy back the stock at a lower price. The practice has been blamed for contributing to the demise of Lehman Brothers and threatening to bring down Morgan Stanley and Goldman Sachs this week.

Although potentially embarrassing for the regulator, the major companies left off the list did not appear to suffer too badly.

GE's stock closed up more than 7 percent after reports that it was looking to be added to the list, while CIT closed up 4.3 percent. American Express did not immediately respond to a request for comment but its shares ended up 7 percent even though it was not on the list.

"The likely psychological impact of the ban is (short sellers) will decide they better not take the risk the SEC will add those companies to the list," said Bruce Hiler, head of securities enforcement at law firm Cadwalader, Wickersham & Taft LLP.

However, inclusion on the list probably came a bit too late for Lehman -- its shares did surge but only to 21.51 cents. The company went into bankruptcy on Monday.

(Additional reporting by Rachelle Younglai and Ros Krasny, Writing by Martin Howell; Editing by Gary Hill)