SEC might consider new short sale restrictions next week

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According to various news sources, the Securities Exchange and Commission will consider new short sale restrictions at an open meeting next week.

The SEC is expected to meet on Wednesday, February 24th2010, to vote on rules that would restrict short selling in a company’s stock if that stock fell by more than a certain percentage, such as 10 percent.

Lawmakers and bank executives blamed short selling for contributing to the downfall of Lehman Brothers and Bear Stearns.   As the result, the SEC proposed a number of measures last year to restrict short selling, where investors bet the stock’s price will fall.   The SEC proposed restrictions that would apply across equity markets as well as curbs that would only apply if a stock fell precipitously.

One proposal was to bring back a version of the uptick rule — a curb that was first adopted after the 1929 market crash.   The SEC abolished the uptick rule in 2007 after concluding that it was no longer effective in modern markets.

According to sources familiar with the SEC plan, the agency is expected to consider a “circuit breaker” measure that would trigger a so-called passive bid test.   A passive bid test would only allow short selling above the national best bid.    Any new rule needs the approval of the majority of the five SEC commissioners.   The two Republican commissioners are not expected to vote in favor of the short sale restrictions.

Anna Timone (195 Posts)


Comments

  1. Saxophones, no descending runs! Everybody else in the band, how low can ya go!?

  2. So traders should become good at picking tops to be profitable, bad thing. Plus if they limit the short side this will lead more easy to bubbles given that traders will be buying on dips and there will be no restriction to going long.

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