Short selling comes under fire as regional banks sell-off

Short sellers, who borrow shares they expect to fall and hope to repay the loan for less later to pocket the difference, have profited from the banking crisis. They gained $1.2 billion in the first two days of May, analytics firm Ortex said.

Wachtell, Lipton, Rosen & Katz, a law firm that has represented large companies, such as Twitter, in mergers and against attacks from hedge funds, on Thursday called on U.S. securities regulators to restrict short sales of financial institutions.

In a letter to clients, Wachtell said that the Securities and Exchange Commission (SEC) should regulate what it defined as “coordinated short attacks” by imposing a 15-trading day prohibition on short sales of financial institutions.

This would allow time for regulators to act and for investors to digest information, Wachtell’s co-chairman Edward D. Herlihy and partner Matthew M. Guest wrote in the letter, adding that attacks by short sellers are not related to fundamental performance and put the U.S. economy at “great risk.”