Financial stocks suffer after protection ends

0 Comments | USA TODAY, August, 2008 | by Matt Krantz

The SEC's emergency curb on short selling of 19 major financial services firms stocks expired before Wednesday trading, leaving investors to wonder if the measure helped protect the strained system.

Since July 21, the SEC rule banned "naked" short sales on those 19 stocks. Short sellers hope to profit by selling borrowed shares and replacing them at lower prices. In naked short sales, traders don't actually borrow the shares; that can intensify the downward pressure on a stock.

The rule's expiration appeared to have some effect Wednesday as financial stocks suffered sizable losses. That could mean short sellers have been at least partly behind big drops in shares of some financial companies.

"There has to be some sort of correlation between the...