new short selling restrictions 10%+ down

Discussion in 'Trading' started by zdreg, May 12, 2010.

  1. zdreg


    05-12-10 08:23 AM

    "On Monday, the following link was issued from the SEC:

    In essence, the SEC adopted Rule 201 of Regulation SHO which is designed to prevent abusive short selling. Quoting directly from the SEC dictum: "Rule 201 of Regulation SHO requires a trading center1 to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent it from executing or displaying any short sale order of a "covered security," absent an exception, at a price that is equal to or below the current national best bid if the price of that security declines intra-day by 10% or more from the security's closing price as determined by the covered security's listing market as of the end of regular trading hours on the prior day. If the security experiences such a 10% or more price decline, the Rule's restrictions will be in place for the trading day on which the circuit breaker is triggered and the following day. In addition, a trading center's policies and procedures must be reasonably designed to permit the execution or display of an order marked "short exempt," regardless of its price. A trading center must also regularly surveil its policies and procedures to ascertain their effectiveness and take prompt action to remedy any deficiencies. Rule 201 applies to any "covered security," which is any NMS stock. Thus, Rule 201 generally applies to all securities, except options, that are listed on a national securities exchange, whether traded on an exchange or in the over-the-counter market." Ergo, what is notable for day traders here is that if a stock experiences a decline of 10% or more from the previous day's close, a stock cannot be shorted at a price at or below the prevailing bid price. For instance, if C was 4, down 70 cents with a bid-offer of 4 to 4.01, one could not place a sell order for 25,000 shares to short at 3.99. The order would instead go in at 4.01. The other thing of note is that the effective date for these amendments was May 10, 2010, but all market participants have until November 10, 2010 to adopt the policy. The SEC actually presented several different rules which ranged from a ban of short selling if a stock fell sharply to the uptick rule to the alternative uptick rule that was ultimately approved. "
  2. Isnt this the same as a 10% limit down?