Abolishing short sale uptick rule??

Discussion in 'Trading' started by countrydog2, May 31, 2007.

  1. Seems like I recall reading on one of these threads a while back that the SEC was considering or had already decided to abolish the uptick rule when shorting stocks. Not just SHO stocks but all stocks. Anyone know anthing about this or its status. Thanks
  2. 13 Jun 2007 12:21 EDT =DJ UPDATE: SEC Approves Changes To Short-Selling Rules

    (Updated, adds details on eliminating short-selling restrictions and other details from meeting.)

    By Judith Burns

    WASHINGTON (Dow Jones)--The Securities and Exchange Commission voted Wednesday to abolish longstanding rules that restrict short sales in declining markets and approved another change to tighten rules intended to curb manipulative short sales, including so-called "naked" short sales.

    The first change ends decades-long restrictions by the SEC and U.S. markets on selling short as prices are falling. An experiment in lifting the rules for select stocks showed there was little justification for retaining restrictions such as the New York Stock Exchange's "tick" test, SEC Chairman Christopher Cox said.

    Elimination of SEC's short-sale price restrictions, and rules barring markets from using a "tick" or "bid" test to control short sales will take effect immediately after the rule change is published in the Federal Register, SEC staffers said.

    A second change approved by the SEC modifies Regulation SHO, which the agency adopted in 2004 to curb abusive short sales. The change eliminates a controversial exception to the 2004 rule that shielded existing short positions from requirements to deliver hard-to-borrow shares within 13 days of settlement. Once the change takes effect, short positions previously protected by the grandfather clause must be closed out within 35 days.

    Short selling involves sales of borrowed securities, producing profits when prices decline. The practice is legal, but the SEC's Regulation SHO sought to prevent "naked" short sales, in which short sellers don't borrow securities they sell.

    SEC officials said delivery failures have declined about 35% overall since Regulation SHO took effect and have fallen about 53% for hard-to-borrow stocks defined as "threshold" securities.

    Longstanding, persistent delivery failures seem to be due to the grandfather protections and a shield for short positions held by option market makers, Cox said. He said delivery failures hurt investors and companies, and may be a sign of naked short selling.

    "It continues to be a problem, particularly in the microcap space," Cox told reporters after the SEC meeting.

    More public data on delivery failures is in the works, as the SEC plans to make Depository Trust Co. data available on the SEC Web site shortly. SEC officials plan to remove certain confidential information from the data feed already supplied by the DTC before posting it online.

    The SEC abandoned earlier plans to narrow the exception for option market makers and voted Wednesday to seek comment on eliminating the exception altogether, or adopting alternative approaches.

    In addition, the SEC deferred action on a fourth rule that would have tightened short-sales in connection with public offerings, but Cox said it plans to take up the matter shortly, perhaps later this month.