- 90. Rep. Paul Kanjorksi, “Opening Statement Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises Hearing Perspectives on Hedge Fund Registration.” May 7, 2009. Available at:
- 91. Steven L. Schwarcz, “System Risk,” The Georgetown Law Journal, Vol. 97 (2008): 193-249. Available at: http://www.georgetownlawjournal.org/issues/pdf/97-1/Schwarcz.PDF
- 92. Lord Adair Turner, “The Economist’s Inaugural City Lecture,” op. cit., footnote 46. The Turner Review, op. cit., footnote 46. The de Larosière Group, op. cit., footnote 47.
- 93. Treasury Secretary Tim Geithner Written Testimony House Financial Services Committee Hearing. March 26, 2009. Available at: http://treasury.gov/press/releases/tg71.htm
- 94. IOSCO, Hedge Funds Oversight: Final Report. June 2009. Available at:
- 95. King, op. cit., footnote 39.
- 96. GAO, op. cit., footnote 75.
- 97. Deutsche Bank, op. cit., footnote 5.
- 98. As Asset Managers’ Best Practices, op. cit., footnotes 78 and 79, explains, “Financial Accounting Standard 157 (‘FAS 157’) establishes a useful hierarchy of assets based on the reliability of available pricing information: Level 1 assets have observable market prices (such as New York Stock Exchange-listed stock prices); Level 2 assets have some observable market price information other than quoted market prices (such as broker quotes for certain OTC derivatives); and Level 3 assets have no observable market price information (such as private equity investments).” To learn more about Levels 1,2, and 3, see “Summary of Statement 157” on FASB’s Website: http://www.fasb.org/st/summary/stsum157.shtml
- 99. Ben S. Bernanke, “Speech at the Federal Reserve Bank of Atlanta’s 2006 Financial Markets Conference, Sea Island, Georgia.” May 16, 2006. Available at: http://www.federalreserve.gov/newsevents/speech/bernanke20060516a.htm
- 100. Asset Managers, Best Practices, op. cit., footnote 78.
- 101. Disclosure of Short Sales and Short Positions by Institutional Investment Managers, Rel. No. 34-58785 (Oct. 15, 2008), 73 Fed. Reg. 61678 (Oct. 17, 2008).
- 102. For example, the Federal Trade Secrets Act sets criminal penalties for the unauthorized revelation of trade secrets. The Freedom of Information Act (FOIA) and SEC’s Rules under FOIA provide that the SEC generally will not publish matters that would “[d]isclose trade secrets and commercial or financial information obtained from a person and privileged and confidential [information].” Also, in connection with long position reporting under Section 13(f) of the Exchange Act, Congress specified that the SEC, upon request, should exempt from public disclosure information that would reveal an investment manager’s ongoing trading programs. The legislative history of Section 13(f) in the Senate Banking Committee report emphasized that it “believe[d] that generally it is in the public interest to grant confidential treatment to an ongoing investment strategy of an investment manager. Disclosure of such strategy would impede competition and could cause increased volatility in the market place.” Report of Senate Committee on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 87 (1975).
- 103. State Street, op.cit., footnote 5.
- 104. Asset Managers and Investors Committees, op. cit., footnotes 78 and 79.
- 105. Ibid.
- 106. Ibid.
- 107. SEC Staff Report, The Implications of the Growth of Hedge Funds. September 29, 2003. Available at: http://www.sec.gov/news/studies/hedgefunds0903.pdf
- 108. State Street, op.cit., footnote 5.
- 109. Asset Managers and Investors Committees, op. cit., footnotes 78 and 79.
- 110. SEC, Concept Release: Short Sales. Release No. 34-42037. October 20, 1999. 64 Fed.Reg. 57996, 57997. Available at: http://www.sec.gov/rules/concept/34-42037.htm
- 111. Ekkehard Boehmer, Charles M. Jones, and Xiaoyan Zhang, “Unshackling Short Sellers: The Repeal of the Uptick Rule.” November 2008. Available at: http://gates.comm.virginia.edu/uvafinanceseminar/Jones%20paper%2008.pdf
- 112. See: Ekkehart Boehmer, Charles M. Jones, and Xiaoyan Zhang. “Which Shorts are Informed?” Journal of Finance, 2008, 63: 491-527. Short sellers can systematically identify relatively overvalued stocks. Highly shorted stocks earn significantly lower risk-adjusted returns over the next 60 days when compared to lightly shorted stocks. Ferhat Akbas, Ekkehart Boehmer, Bilal Erturk, and Sorin M. Sorescu. “Why Do Short Interest Levels Predict Stock Returns?” March 10, 2008. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1104850. “Our evidence suggests that short sellers act as specialized monitors who generate value-relevant information in the stock market” about “future fundamental value, especially for stocks with low institutional ownership.” P.A.C. Saffi and Kari Sigurdsson. “Are Short Sellers Stakeholders?” Working Paper 2007. London Business School. Available at: http://aaahq.org/AM2008/display.cfm?Filename=SubID_1858.pdf&MIMEType=application%2Fpdf . “Short sellers effectively act as a safety valve for companies in distress. Instead of curbing their activities (which only exacerbates the problem), short sellers should be encouraged in order to bring share prices back to realistic levels. In other words, short sellers can ‘correct’ market prices. In this scenario, short sellers effectively neutralise ‘irrational exuberance’ in the economy.”
- 113. See: Ekkehard Boehmer and Julie Wu, “Short Selling and the Informational Efficiency of Prices.” 2007 Working Paper. Texas A&M University. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=972620. Ekkehart Boehmer and Eric Kelley,”Institutional Investors and the Informational Efficiency of Prices.” 2007 Working Paper. Texas A&M University. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=791905. Daily shorting flows are positively related to several measures of informational efficiency. Short sellers are highly informed traders; their information moves prices for several weeks. When Professor Julie Wu examined the relationship between shorting and market efficiency in light of Regulation SHO (reduced restraints on short sales for a limited number of stocks), she found that the pilot stocks experienced “some improvements in price efficiency that are associated with increased shorting activity following the removal of the tick test. . . . These results provide additional support to the key finding that short sellers directly contribute to greater price efficiency.”
- 114. See: Hazem Daouk and Anchada Charoenrook, “A Study of Market-Wide Short-Selling Restrictions.” February 2005. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=687562. “We find no support for the short-selling opposition’s argument that short-selling disrupts orderly markets by causing panic selling, high volatility, and market crashes. Collectively, our empirical evidence shows that allowing short sales improves market quality.”
- 115. Maria Bartiromo, “SEC Chief Mary Schapiro: The Watchdog’s New Teeth.” Business Week, May 14, 2009. Available at: http://www.businessweek.com/magazine/content/09_21/b4132013769154.htm
- 116. Charlie McCreevy, “Speech: Press Conference on Financial Package.” April 29, 2009. Available at: http://europa.eu
- 117. Matthew Clifton and Mark Snape, “The Effect of Short-selling Restrictions on Liquidity: Evidence from the London Stock Exchange.” December 19, 2008. Available at: http://www.londonstockexchange.com/about-the-exchange/regulatory/short-selling-restriction-market-quality-december-2008.pdf
- 118. 118. Deborah Brewster and Jennifer Hughes, “Negative Sentiment.” Financial Times. June 23, 2008. Available at: http://www.ft.com/cms/s/0/095c286a-40bb-11dd-bd48-0000779fd2ac.html. Owen A. Lamont, Testimony before the Senate Judiciary Committee. June 28, 2006; Available at: http://judiciary.senate.gov/hearings/testimony.cfm?id=1972&wit_id=5489.
Alix Spiegel, “Short Selling: Profiting from Others’ Misery?” Morning Edition. NPR. July 18, 2008. Available at: http://www.npr.org/templates/story/story.php?storyId=92664004 . James J. Angel. Comment letter to the SEC. August 15, 2008. Available at: http://www.sec.gov/rules/petitions/4-500/jjangel081505.pdf
- 119. Arturo Bris, William N. Goetzmann, and Ning Zhu, “Short Sales in Global Perspective.” December 2003. Yale ICF Working Paper No. 04-01. Available at: http://ssrn.com/abstract=486264