A Bid to Curb Profit Gambit as Banks Fall Correction Appended Traders who have sought to profit from the financial crisis by betting against bank stocks were attacked on two continents on Thursday. The Securities and Exchange Commission is considering a temporary ban on short sales of some or all shares and an announcement could be made as early as Friday morning. Earlier Thursday, the S.E.C. scrambled to put together an emergency rule to force major investors to disclose their short sales daily. In Britain, regulators announced new rules to bar short selling. Short selling - a bet that a stock price will decline - is the practice of selling stock without owning it, hoping to buy it later at a lower price, and thus make a profit. It has often been blamed for forcing prices down in times of market stress, but the level of anger has intensified as the American government has been forced to bail out major financial institutions and the leaders of some investment banks have asked for action to protect their shares. Both the S.E.C. and the New York State attorney general promised to intensify investigations into short selling abuses. "They are like looters after a hurricane," said Andrew M. Cuomo, the attorney general. If you pass a rumor in a normal marketplace, people are calm, they check it out, they do their due diligence. When you get the market in this frenzied state and they are on pins and needles, any false information is much more impactful. Short sellers say that the criticism directed at them, and any restrictions on their activity, are wrong-headed, because they were among the first to raise the alarm about the risky mortgage lending practices that led to the current financial crisis. Senator John McCain, the Republican presidential candidate, said the S.E.C. had "kept in place trading rules that let speculators and hedge funds turn our markets into a casino" and said that the S.E.C."s chairman, Christopher Cox, had "betrayed the public's trust." Speaking at a rally in Cedar Rapids, Iowa, Mr. McCain said, "If I were president today, I would fire him." The White House immediately said it supported Mr. Cox, who has said he will resign at the end of the Bush administration. Mr. Cox said he had moved against short sellers and was doing all he could to stem the financial crisis. "Now is not the time for those of us in the trenches to be distracted by the ebb and flow of the current election campaign," Mr. Cox said in a statement released by the commission. It is precisely the wrong moment for a change in leadership that inevitably would disrupt the work of the S.E.C. at just the wrong time. Mr. Cox is a former White House aide to President Ronald Reagan and a former Republican congressman from California. Some conservative columnists and commentators, including Robert Novak, supported him as a running mate for Mr. McCain. Writing in the American Spectator earlier this year, Quin Hillyer said that conservatives would rally to a Cox selection and called him "the best choice, bar none." In recent weeks, Mr. Cox has also stepped up his criticism of short sellers, particularly those who engage in "naked" short selling. While short sellers are supposed to borrow shares before selling them, naked shorts do not borrow. That saves the cost of borrowing, though the trader is still vulnerable to losses if the share price rises. Opponents of short selling believe that it can force share prices down and destroy confidence in a company that might otherwise survive. Regulators have long thought that the practice was crucial for efficient markets to function, but earlier this year the S.E.C. imposed temporary limits on short selling of some financial stocks. Financial share prices rallied when those limits were announced but fell during the period in which the rule was in effect. Share prices for many financial companies shot up Thursday afternoon after plunging the day before in the wake of the government decision to take control of the American International Group, a large insurance company, to prevent it from collapsing. Financial shares were especially hard hit Wednesday, with Morgan Stanley plunging 24 percent, to $21.75, and its chief executive, John J. Mack, blaming false rumors spread by short sellers. On Thursday, Morgan Stanley regained part of that loss, rising 3.7 percent to close at $22.55. The latest moves against short sellers began Wednesday. In the morning, Mr. Cox announced new rules to prevent brokerage firms from selling a stock short if they previously had sold the stock short without having borrowed it. That night, he said that he would propose more rules, to force large short sellers to disclose their positions. The rules were needed, he said, "to ensure that hidden manipulation, illegal naked short selling or illegitimate trading tactics do not drive market behavior and undermine confidence." Details of the possible new disclosure rule were not released, and it is not clear how much authority the S.E.C. has over hedge funds, which have successfully sued to prevent the commission from forcing them to even register with it. Institutional investors, including some hedge funds, provide details of stocks they own every three months but do not disclose short positions. Mr. Cox said he wanted daily disclosure of short positions, which he said would be made public, though he did not say how quickly. By late Thursday, the S.E.C. was considering a temporary ban of some or all short selling. Mr. Cox told reporters in Washington late Thursday that he had discussed the ban with other senior administration officials but no decision had been made yet. Richard Baker, the president of the Managed Funds Association, a hedge fund trade group, said the funds would comply with any rules but said that disclosure of their trading positions should not be made so quickly that it would harm them in the market. Mr. Cox also said the S.E.C. would intensify its investigations of short selling by hedge funds and would demand their records on trading in certain securities. In Britain, the Financial Services Authority said that beginning Friday it would bar traders from taking new short positions in listed stocks of financial companies, and that starting next week, investors would have to disclose their short positions if they were at least 0.25 percent of a company's outstanding shares. This week, the British bank Lloyds TSB took over HBOS, a mortgage lender, after HBOS's stock tumbled. That fall was widely blamed on short sellers, and Prime Minister Gordon Brown vowed to clean up the financial system. To obtain shares to sell short, traders often borrow them from institutional investors, who receive small fees for the loans. But public pension funds in New York and California said Thursday that they would stop lending shares of some financial companies. New York State's comptroller said the state's Common Retirement Fund would temporarily stop lending the shares of 19 banks and brokerage firms to short sellers. "This speculative selling has put downward pressure on the entire stock market and threatens to drive our national economy deeper into decline," Thomas P. DiNapoli, the comptroller, said in a statement. The suspension removes 105 million shares from the fund's securities lending program. It will last until market conditions stabilize, a spokesman said. New York City's comptroller announced the same move, as did officials in California. "We're pulling them back because of the unfortunate predators that are out there right now, trying to be greedy," said Patricia K. Macht, an official of the California Public Employees" Retirement System. Landon Thomas Jr. contributed reporting. Correction: September 23, 2008 A picture caption on Friday with the continuation of a front-page article about new restrictions on short selling of stocks reversed the identifications of the leaders of two British banks that merged after the shares of one of them, HBOS, plummeted, possibly because of short selling. Andy Hornby, chief executive of HBOS, was third from left, and Eric Daniels, chief executive of its purchaser, Lloyds TSB, was fourth from left.