CBOE chief sees SEC reintroducing short-selling uptick rule

The Securities and Exchange Commission (SEC) will shortly put forward a consultation paper looking to reintroduce the uptick rule and seek to comprehensively put a stop to naked short selling, the chief executive of the Chicago Board Options Exchange (CBOE) has predicted.

Speaking at the CBOE risk management conference in Dana Point, California, William Brodsky told delegates that he expected the SEC "to very soon put out a release on a proposed rule on short selling bringing back the uptick rule, and certainly to deal with whatever they call naked short selling."

The uptick rule, introduced in 1934, established that a stock could only be sold short if the price of the last trade on the stock was higher than the price on the preceding trade, preventing short sellers from driving down the price of an equity that is already declining in value.

The CBOE strenuously opposed the SEC's ban on short-selling of financial equities introduced in September 2008, with Brodsky successfully securing an exemption for options market makers from the "knee-jerk" ban, after holding discussions with former SEC chairman Christopher Cox.

Brodsky urged delegates to respond to any SEC consultation paper upon its release and, though welcoming the move to restrict and punish "properly defined naked short selling", he cautioned that should the securities regulator attempt to clamp down on such behaviour "it is important to be very careful when you define these things".

The injunctions against short selling financial stocks enacted by both the SEC and the UK Financial Services Authority were allowed to lapse on October 8 and January 16 respectively, though the Australian Securities and Investment Commission announced on March 4 that its ban on short selling would be extended until May 31.

See also: The short story
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