House Democratic leader offers bill on short-selling

WASHINGTON (Reuters) - U.S. House Democratic leader Steny Hoyer said Tuesday he would introduce a bill to regulate the Wall Street practice of short-selling stocks, which he called a “major problem.”

Hoyer’s proposal would require the Securities and Exchange Commission to force brokers to publish the identity of short-sellers, the companies whose shares they are selling short and the number of shares involved.

Brokers would have to notify and compensate customers when they are using their shares for a short sale.

“I believe that short selling has been a major problem,” Hoyer told reporters, adding the measure was designed to “check the abuses” that could drive down the value of vulnerable companies.

In a short sale, an investor borrows stock from another investor and sells it in the hope its price will fall. Then the short-selling investor buys back the stock at the lower market price, returns these shares, and pockets the difference.

Hoyer said he hoped his proposal would be incorporated into legislation to regulate financial services being developed by the House Financial Services Committee.