DiNapoli said in a news release that the move was aimed at controlling mounting pressure on stock prices of financial services companies. New York’s bid to stabilize financial markets follows a similar move in mid-July by state pension funds in New Jersey, which instructed their lending custodian to stop lending securities to short sellers.
“The financial services industry has experienced declines in public equity values that in some cases are unconnected to the long-term financial health of the industry,” DiNapoli said, in the news release. “This speculative selling has put downward pressure on the entire stock market and threatens to drive our national economy deeper into decline. By removing some of the fuel that is feeding this speculative fire, my action is intended to bring stability and rationality back to our equity markets.”
According to the announcement, the state’s $154 billion will remove the shares of 19 bank and brokerage firms, including Goldman Sachs Group and Morgan Stanley, from those available in its securities lending program.
“Combined with recent Securities and Exchange Commission (SEC) rules curbing short selling, DiNapoli believes that his actions will restore fundamentals —earnings power and long-term franchise value — as the key drivers of stock prices,” the DiNapoli announcement said.
The firms whose shares DiNapoli removed from the program are those identified by the SEC in its July 15 emergency order aimed at “naked” short selling.
New York City Joins the Effort
A Reuters news report said New York City’s pension funds followed suit after DiNapoli’s move. William Thompson, the city comptroller, said the city’s pension funds were suspending securities lending for the same 19 stocks on the SEC list.
California Public Employees’ Retirement System (CalPERS), the largest U.S. public pension fund only stopped lending the stocks of four banks — Goldman, Morgan Stanley, State Street Corp and Wachovia Corp (See CalPERS, Maryland Sec Lending Programs Respond to Markets ). CalPERS said it expects to lift its restrictions “once the market volatility abates.”
California State Teachers’ Retirement System (CalSTRS) also participated in the effort with the other pension programs.
Reuters said Maryland’s $37 billion pension fund also enacted curbs — and gave short sellers 24 hours to return the $1.4 billion of stock out on loan as of Wednesday’s close, according to Dean Kenderdine, executive director of the state retirement and pension agency.