SEC mulls new short-selling rules

The US regulator is considering a short-selling regime close to the old up-tick rule

WASHINGTON, DC - The US Securities and Exchange Commission (SEC) has extended its consultation period for creating new short-selling rules, with the regulator pushing the idea of allowing short sellers to buy only at a price above the current market bid price.

The system, which is one of two under consideration, is known either as the 'alternative uptick rule' or the 'upbid rule'. It closely resembles the former uptick rule dating from Depression-era regulation, abolished in 2007.

The SEC has asked for further comments on the idea, which it says "may be more effective and easier to implement than previously proposed price test restrictions currently under consideration".

The regulator is delaying for at least one month any regulatory action on the shorting issue, reopening the consultation period, which ended on June 19, with a new comment period running for another 30 days.

"Today's request for additional comment is consistent with the deliberative process of determining what is in the best interest of investors," says SEC chairman Mary Schapiro. "We want to ensure everyone has a full opportunity to provide their comments on this alternative uptick rule before the Commission reaches any conclusions."

In April the SEC proposed two approaches to restrict short selling, in response to international accusations that it had affected financial stability by decimating bank share prices.

One suggested approach was to apply rules on a permanent and market-wide basis, restricting shorting based on either the last sale price or the national best bid.

The other approach would act as a 'circuit-breaker' and apply only to specific securities during crisis periods to prevent prices plummeting. Once triggered, the breaker would halt or restrict shorting based on either the last sale price or the national best bid.

The SEC says the proposed alternative uptick rule would allow short selling only at an increment above the national best bid, and has reopened consultation specifically for the evaluation of that option.

You can comment online via the SEC release, which can be read here.