Reaction to short-selling crackdown

NEW YORK (Reuters) - A global crackdown on the short-selling of financial stocks gathered pace on Friday, kick-started by a move from the UK's Financial Services Authority.

Regulators in the United States and Ireland are among those following suit, while several large European and U.S. pension funds have banned stock lending in the financial sector.

Markets have staged a widespread recovery this morning on hopes the move will help restore investor confidence.

INDUSTRY / FUND MANAGEMENT REACTION JOHN STANDERFER, VP FINANCIAL SERVICES, S3 MATCHING

TECHNOLOGIES, AUSTIN, TEXAS

"Short sellers provide an important reality check to the unbridled enthusiasm that generally emanates from the companies themselves.

"It was short sellers who first uncovered the problems at Enron and Worldcom and asked the hard questions on the conference calls and via the media.

"The root-cause analysis of this problem is not 'short-selling' but that these companies took on obligations far in excess of their capital, and when some of those obligations came due, they did not have the money to meet them."

JIM CHANOS, PRESIDENT, KYNIKOS ASSOCIATES & CHAIRMAN, COALITION OF PRIVATE INVESTMENT COMPANIES

"We are very concerned that these emergency orders will not enhance long term market integrity nor will they address the fundamental economic issues that have been afflicting our financial sector.

"We also believe that markets cannot withstand for long constantly changing rules in which each new regulation is announced in the middle of the night without any public comment or participation.

"Far from being the cause of the crisis, many short sellers were warning months and years ago about problems in this area.

"Simply put: short selling is a vital investment strategy that responds to market fundamentals and contributes to the integrity of stock prices.

"Investors are best served when they can hear both the reasons to buy and the reasons to sell any given security. These emergency orders limit the free flow of information and ultimately will not work to help the United States maintain the freest, strongest and most liquid capital markets in the world."

ERIC NEWMAN, PORTFOLIO MANAGER AT TFS CAPITAL

"In July, Christopher Cox said that ordinary short selling 'is a healthy and necessary part of a free market.' Maybe banning short selling was a necessary step to save the market. But let's stop blaming the short sellers.

"The irony is that SEC is doing exactly what claims to be against - manipulating the markets and propping up ailing financial companies that are now politically important because they are essentially backed by taxpayers through the term lending facility.

"It does have a psychological impact because short sellers fear there may be further restrictions down the road."

MATT MCCORMICK, PORTFOLIO MANAGER, BAHL & GAYNOR INVESTMENT COUNSEL INC, CINCINNATI, OHIO:

"The government is doing everything possible to protect financial stocks and prop them up in the short term and try to get through a weekend without someone blowing up.

"Everybody out there likes seeing the market going up, but from a longer-term standpoint, it's interventionist. This is not capitalism. For the broad market to get out of a bear market, these financial companies are going to have to stand on their own two feet, and a market where the Federal government is not protecting them.

"These new short selling rules open a Pandora's box. What happens to the auto sector? The airline sector?"

MARTIN GILBERT, CHIEF EXECUTIVE, ABERDEEN ASSET MANAGEMENT:

"The ban is a good idea and it will help. Well, it has already helped. But I think they had to do it. It just becomes self-perpetuating. I think the financial stability of the banking sector is more important than anything else."

KEITH SKEOCH, CHIEF EXECUTIVE, STANDARD LIFE INVESTMENTS:

"I think it's absolutely the right thing to do, these are extraordinary times, extraordinary markets and they require exceptional measures and I am particularly pleased it has been put in place because it shows action by part of the UK authorities and I think the FSA should be applauded.

"That said I'm also particularly pleased that it's temporary and I think that the market should be allowed to settle down and short selling is part of the market and quite pleased that at some point the ban will be lifted."

STEVE BROZAK, ANALYST, WBB SECURITIES

"The biotechs are benefiting from these new rules because they have been the target of naked short-selling for years."

"People are beginning to understand that there will be a focused hunt for anyone that has broken the rules, and the lowest hanging fruit will probably be the people who have shorted the techs and biotechs because they've been doing it for so long so there is a greater body of evidence for regulators to work with. These guys are not going to be able to use the same business model."

ROBERT JENKINS, CHAIRMAN, INVESTMENT MANAGEMENT ASSOCIATION:

"At such times confidence is key. We believe this may be helpful."

PAUL LEE, DIRECTOR AT HERMES EOS, WHICH HAS IMPOSED ITS OWN

LENDING BAN:

"This week when it looked to us like what was going on had shifted from a healthy clean out of the excesses of the market to an unhealthy chasing down of the weakest members of the pack, we decided to put a whole slate of UK and international stocks on our stop lending stock list."

GEORGE MAZIN, PARTNER, DECHERT LLP

"Part of this is politics, and part is a view that there was going to be a significant malaise that was going to drag on for a long time that the government had to do something dramatic."

(By Raji Menon, Toni Clarke, Emily Chasan, Rachelle Younglai, Dan Wilchins)