‘Naked’ Short-Selling Ban Expires Tuesday

The Security and Exchange Commission’s 30-day rule temporarily banning short selling of Freddie Mac and Fannie Mae stock is set to expire Tuesday night.

Since the ban took effect July 21, the shares of the two mortgage finance companies have stabilized, but whether that move was ultimately effective is yet to be determined.

At issue was whether short sellers should be allowed to engage in “naked” short selling, or selling shares they haven’t even borrowed. The SEC order required sellers to borrow the shares before they sold them.

The SEC “will continue exploring other remedies for the broader marketplace to further protect investors from 'distort and short' artists,” said SEC Chairman Christopher Cox.

Experts are wondering whether there will be any major changes in trading of Freddie Mac, Fannie Mae and the 17 other large investment banks included in the order after the naked short selling ban expires.