However, federal regulators are aware that short-sellers may send already bearish markets plummeting and are gambling that temporarily easing buyback restrictions will prove a supportive measure. Usually, corporations are prevented from trading more than a specified daily volume of their own stock. The SEC hopes that by relaxing usual limits, stock prices can be supported and cash pumped into the system – ensuring liquidity. Buybacks are critical to market stability, according to Michael Oxley, chairman of the House Financial Services Committee. Many corporates have already pledged to enter into large buybacks. For example, Cisco Systems said last Thursday that it plans to buyback up to $3 billion worth of stock.
These have been trying times for equity options traders as well. Many traders had hoped that because of the four-day options market closure last week, authorities would extend the September options expiration cycle. But hopes were to be quashed. Last Friday, the Options Clearing Corporation – the organisation responsible for processing and clearing options traded on the US’ options exchanges – confirmed that the expiration date for equity and index options will remain Friday September 22. The OCC’s statement simply said that it “has no authority to extend options expirations". So despite the cessation of trading, September options continued to lose time value. When the opening bell chimes this morning to signal that the NYSE is back in business, equity options will have four days’ time decay priced in.
Back in the equity markets, the sheer scale and ferocity of the terrorist attack seems to have galvanised market opinion. It is expected that hedge funds and other short-sellers will find resistance, irrespective of regulation. By last Friday, US pension funds were asserting their intention to support the markets. Representatives from the National Association of State Retirement Administrators – a coalition of some of the largest US pension funds – said that they would buy stocks, should the short-sellers strike. Whether such action can counter hedge fund activity remains to be seen. But the Nikkei’s 5.04% tumble to close at 9504.41 – a seventeen year low – does not instil much optimism.