SEC shortlists two measures to prevent abusive short selling
The US Securities and Exchange Commission (SEC) named its two preferred measures for preventing abusive short selling on August 17.
The SEC originally released a discussion paper on April 8, outlining possible methods to prevent abusive short selling. This deadline expired on June 17, but the SEC has elected to seek further market comment over the next 30 days, while narrowing the scope of its original paper to focus on two possible options.
The first option, known as the 'alternative uptick rule', envisages a market-wide approach, where only short sales above the last sale price or national best bid – the best available bid price quoted across all exchanges and market-makers – would be allowed.
This approach differs from the SEC's previously proposed 'modified uptick rule' and the 'proposed uptick rule' in that it would not allow short selling at either the current national best bid or the last sale price.
According to the SEC, this new proposal would be easier to observe as there would be no need to monitor the sequence of bids. It is also thought that this approach will be quicker to adopt and less costly.
The second option is the ‘circuit breaker' approach – generally more favoured at roundtable discussions in May – which would work with certain securities when the price of that security had declined by a fixed amount. The circuit breaker would either lead to a complete halt of short-selling activity on that security, or a short-sale restriction based on either the last sale price or the national best bid.
Amid the financial turmoil, the SEC temporarily banned short selling on September 19, 2008. Since then, the SEC has examined various measures to prevent abusive short selling, without detracting from the potential benefits short selling can provide, such as market liquidity, pricing efficiency and hedging.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
SEC streamlines overhaul of stock trading rules
Tick size and access fee rules simplified from first draft, but Peirce still questions rationale
Supervisors use generative AI to tame ‘chaotic’ data
Officials merge credit databases with unstructured reports to sharpen bank oversight, explains Banco de España ex-deputy
EU banks fear loss of NSFR repo relief
European Commission must decide by next June; other jurisdictions adopted softer calibration
Running the numbers on Barr’s Basel III endgame revisions
Fed vice-chair’s plan to ease capital requirements for big banks still lacks critical details
Endgame manoeuvre: US banks put SLR reform back in spotlight
Plan to ease Basel III brings renewed focus to impact of leverage ratio on US Treasury market
Regulators want to fix AT1s. Investors want restraint
Tweaking the instrument that regulators love to hate may be the only way to prevent its abolition
More disclosure touted to temper pre-hedging ills
Transparency could help investors choose a dealer, but will they use the disclosures?
Fed’s Basel III rollback gives clearing units a capital break
Client-cleared trades will be exempt from CVA charges and G-Sib surcharge calculations, says Barr