SEC approves short selling restrictions
25 February 2010
These measures are intended to promote market stability and preserve investor confidence. "Short selling can potentially have both a beneficial and a harmful impact on the market," said SEC Chairman Schapiro.
The Securities and Exchange Commission today adopted a new rule to place certain restrictions on short selling when a stock is experiencing significant downward price pressure. The measure is intended to promote market stability and preserve investor confidence.
This alternative uptick rule is designed to restrict short selling from further driving down the price of a stock that has dropped more than 10 per cent in one day. It will enable long sellers to stand in the front of the line and sell their shares before any short sellers once the circuit breaker is triggered.
"The rule is designed to preserve investor confidence and promote market efficiency, recognizing short selling can potentially have both a beneficial and a harmful impact on the market," said SEC Chairman Mary Schapiro. "It is important for the Commission and the markets to have in place a measure that creates certainty about how trading restrictions will operate during periods of stress and volatility."
The alternative uptick rule (Rule 201) approved today imposes restrictions on short selling only when a stock has triggered a circuit breaker by experiencing a price decline of at least 10 percent in one day. At that point, short selling would be permitted if the price of the security is above the current national best bid.
Rule 201 includes the following features:
- Short Sale-Related Circuit Breaker: The circuit breaker would be triggered for a security any day in which the price declines by 10 per cent or more from the prior day's closing price.
- Duration of Price Test Restriction: Once the circuit breaker has been triggered, the alternative uptick rule would apply to short sale orders in that security for the remainder of the day as well as the following day.
- Securities Covered by Price Test Restriction: The rule generally applies to all equity securities listed on a national securities exchange, whether traded on an exchange or in the over-the-counter market.
- Implementation: The rule requires trading centres to establish, maintain and enforce written policies and procedures that are reasonably designed to prevent the execution or display of a prohibited short sale.
The rule will become effective 60 days after the date of publication of the release in the Federal Register. Market participants will then have six months to comply with the requirements.
© SEC
