The New York Common Retirement Fund, the most recent addition tothe list, went the furthest, removing 105 million shares in 19banks and lending companies from the pool of available securitiesunder the Fund's Securities Lending Program "so they can't be usedby short sellers."

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"The financial services industry has experienced declines inpublic equity values that in some cases are unconnected to thelong-term financial health of the industry," New York StateComptroller Thomas DiNapoli said in a statement. "By removing someof the fuel that is feeding this speculative fire, my action isintended to bring stability and rationality back to our equitymarkets."

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A CalSTRS source told GlobeSt.com Thursday that it halted thelending of shares of only Morgan Stanley and Goldman Sachsyesterday at 4:30 p.m. EST. They also informed 60 peers of theiractions, which like CalPERS and NY Common may react morebroadly.

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CalPERS stopped lending shares in four companies, adding StateStreet and Wachovia Bank to CalSTRS' list, a company source tellsGlobeSt.com. "We are doing this to bring calm to the markets andwill lift the restriction once market volatility abates," thesource adds.

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NY Common's DiNapoli said that combined with the SEC rulescurbing short selling, which were strengthened as of Thursdaymorning, he believes the actions will "restorefundamentals–-earnings power and long-term franchise value–-as thekey drivers of stock prices."

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The firms whose shares DiNapoli removed from the program arethose identified by the SEC in its July 15 emergency order aimed at"naked" short selling: BNP Paribas Securities Corp., Bank ofAmerica Corporation, Barclays PLC, Citigroup Inc., Credit SuisseGroup, Daiwa Securities Group Inc., Deutsche Bank Group AG, AllianzSE, Goldman Sachs Group Inc, Royal Bank ADS, HSBC Holdings PLC ADS,J.P. Morgan Chase & Co., Lehman Brothers Holdings Inc., MerrillLynch & Co. Inc., Mizuho Financial Group, Inc., Morgan Stanley,UBS AG, Freddie Mac and Fannie Mae.

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In an ordinary short sale, the short seller borrows a stock andsells it, with the understanding that the loan must be repaid bybuying the stock in the market [hopefully at a lower price]. But inan abusive naked short transaction, the seller doesn't actuallyborrow the stock and fails to deliver it to the buyer. For thisreason, naked shorting can allow manipulators to force prices downfar lower than would be possible in legitimate short-sellingconditions.

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The SEC's July emergency order required anyone effecting a shortsale in the aforementioned securities to arrange beforehand toborrow the securities and deliver them at settlement. Yesterday, inan order that immediately became effective, the SEC went a stepfurther than its previous order, which was limited to thesecurities of financial firms with access to the Federal Reserve'sPrimary Dealer Credit Facility and, because the agency's exerciseof its emergency authority is limited to 30 days, expired Aug.12.

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The new rule requires that short sellers and theirbroker-dealers deliver securities by the close of business on thesettlement date [three days after the sale transaction date] andimposing penalties for failure to do so. If a short sale violatesthis close-out requirement, then any broker-dealer acting on theshort seller's behalf will be prohibited from further short salesin the same security unless the shares are not only located butalso pre-borrowed. The prohibition on the broker-dealer's activityapplies not only to short sales for the particular naked shortseller, but to all short sales for any customer.

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The SEC also removed its exception of options market makers fromthe new rules and adopted a rule that "expressly targets fraudulentshort selling transactions" by making clear that "those who lieabout their intention or ability to deliver securities in time forsettlement are violating the law when they fail to deliver."

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