SEC proposes alternative uptick rule

The Securities and Exchange Commission (SEC), the US’s securities regulator, is seeking public comment on a new proposal for a price-dependent restriction on short-selling, which it argues may be more effective and easier to implement than the suggested approaches it outlined in April.
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The Securities and Exchange Commission (SEC), the US’s securities regulator, is seeking public comment on a new proposal for a price-dependent restriction on short-selling, which it argues may be more effective and easier to implement than the suggested approaches it outlined in April.

Price-test restrictions, also known as uptick rules, typically only allow short-selling in a stock that is increasing in value. Under the SEC’s new alternative, short-selling would only be allowed at an increment above the national best bid. The commission has reopened the comment period for 30 days to allow the industry to respond to the new proposal.

In April, the SEC proposed two short-selling restrictions. The first would apply on a market-wide and permanent basis and restrict short-selling based on either last sale price or the national best bid. The second suggestion, a so-called circuit-breaker, would apply only to a particular security during severe price declines. Once triggered, the circuit-breaker would impose a halt or restriction on short-selling based on either the last sale price or the national best bid.

“Today’s request for additional comment is consistent with the very deliberative process of determining what is in the best interest of investors,” said SEC chairman Mary Schapiro in a statement. “We want to ensure that everyone has a full opportunity to provide their comments on this alternative uptick rule before the commission reaches any conclusions.”

The new proposal would not require monitoring of whether the current national best bid is above or below the previous national best bid, which the SEC said would make it easier to track. The commission added that it may be possible to implement the alternative suggestion more quickly and cheaply than the previous proposals.

Comments will be accepted for 30 days from the publication of a notice on the proposal in the Federal Register. The SEC is particularly seeking comment on the alternative uptick rule as a market-wide approach, as well as whether it should be combined with a circuit-breaker.

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