SEC Proposes New Short-Selling Restrictions

Apr 8 2009 | 12:21pm ET

Just months after removing its restrictions on short-selling financial stocks, the Securities and Exchange Commission has unveiled five proposals to once again restrict short sales.

The regulator, under intense pressure from lawmakers to act, unanimously voted to propose several options for new short-selling rules, including the possible return of the uptick rule, which was abolished two years ago. The move opens a 60-day public comment period on the proposals.

The SEC is considering two approaches to curbing short sales. One set of proposals would impose market-wide restrictions, like the uptick rule, which barred a short sale unless the stock’s most recent trade was higher than its previous price. The other set of rules would only cover stocks whose price was falling fast.

The proposals included the refurbished uptick rule and a modified uptick rule, based on the Nasdaq Stock Market’s old bid test. The SEC also offered three different versions of a “circuit-breaker” rule, which would come into affect if a stock falls by 10% during a trading session, and would remain in effect for the rest of the session. The strictest of the rules would impose an outright ban on short-selling, the others would place either an uptick or bid test restriction.


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