CNBC.com

The SEC issued its emer­gency rul­ing against “naked” short-sell­ing to build investor con­fi­dence in mar­ket infor­ma­tion, SEC Chair­man Christo­pher Cox told CNBC.

“What we are par­tic­u­lar­ly con­cerned about is the poten­tial for there to be mali­cious­ly man­u­fac­tured, false infor­ma­tion that feeds into a run, which is fur­thered by not legal short sell­ing, but ille­gal naked short sell­ing,” Cox said.

In a reg­u­lar short sale, investors sell stock they’ve bor­rowed, hop­ing to return the shares lat­er at a low­er price and pock­et the dif­fer­ence. In “naked” short sell­ing, the investor sim­ply “sells” the stock with­out ever bor­row­ing any shares.

Cox said “naked” short-sell­ing isn’t ille­gal, con­trary to what some mar­ket experts say, so the SEC imposed an emer­gency rule that pro­hibts naked sell­ing in the stocks of 19 major finan­cial insti­tu­tions.

Although there are “oper­a­tional rea­sons” why the SEC can’t elim­i­nate this pro­ce­dure through­out the entire mar­ket, it hopes to put an end to as much of it as pos­si­ble, Cox said.

It’s impor­tant to under­stand that the SEC is only try­ing to elim­i­nate ille­gal naked short-sell­ing and not reg­u­lar short-sell­ing, Cox added.

“We need the shorts in our mar­ket in order to bal­ance so we don’t have bubb­bles and so on,” he said. “There’s got ot be a yin and a yang to this.”

The SEC already has ample enforce­ment in place and will not need to increase its bud­get for reg­u­la­tion of the new rule, Cox said.

The emer­gency mea­sure will take effect Mon­day, July 21 and last for at least 30 days. Dur­ing this time the SEC will eval­u­ate whether they want to extend the rul­ing.