new short selling rules

Discussion in 'Risk Management' started by zdreg, Feb 28, 2011.

  1. zdreg


    The major issue that should concern most day traders is the rollout of Rule 201 (Alternative Uptick Rule). This will allow for a short sale-related circuit breaker that upon being hit would impose a condition for the pricing of equities short sold. All exchanges will not allow for the execution or show of short sale orders at a price that is less than or equal to the current national best bid should the stock’s price decline by 10% or more from the previous day’s closing price at the end of regular trading hours on the previous day it traded. Thus if a stock is 11.35 bid to 11.40 offer and one wishes to short, one would only be able to do so at 11.36 if the stock was down 10% or more that day. The duration of the restriction will be through the close of trading on the next trading day thus if a stock declined 10% or more on a Monday morning, the restriction would be in effect until Tuesday’s close. Furthermore, if a stock is halted intra-day, any short sale orders would be executed only one price tick above the open. It’s also worth noting that it is very ambiguous and vague if one sifts through the paperwork that there is no guidance given to extended-hours trading thus it is unclear if the restrictions would not go into place until 9:30AM ET and/or if they’d be valid outside of the traditional 9:30AM-4PM hours. So, just let this primer serve as a heads-up that if you were to day trade stocks ahead or down 10% or more on a day, the rules are changing and you need to be aware of what’s happening.
  2. I don't know what is the Alternative Uptick Rule. I decided to search in my internet. i just want to share to the members when this rule was approved by the Sec.

    SEC Approves the Alternative Uptick Rule

    Securities Law Update
    February 26, 2010

    On February 24, 2010, the Securities and Exchange Commission ("SEC") approved amendments to rule 201 of Regulation SHO ("Alternative Uptick Rule") under the Securities Exchange Act of 1934, as amended ("Exchange Act"). The Alternative Uptick Rule restricts short sales in exchange-listed equity securities that experience a price decline of more than 10% on any trading day from the prior trading day's closing price. Once the 10% circuit breaker is triggered, the subject securities can be sold short only at a price uptick, i.e. when the price is above the current national best bid ("NBB"). This restriction will remain in place for the remainder of the trading day on which the circuit breaker is triggered and the following trading day. The Alternative Uptick Rule is designed to prevent abusive short sales that may be used to drive down the price of a security or exacerbate a market decline in a security.

    The SEC has approved some limited exceptions to the Alternative Uptick Rule. We understand that the SEC will allow short sales regardless of the tick, even when the 10% circuit breaker is triggered, in the following situations: (1) a broker-dealer determines that the price of the trade at the time of submission was above the NBB and it has in place policies and procedures to monitor its short-sale activities pursuant to this exception; and (2) the person selling short is deemed to own the securities but delivery of the securities will be delayed. The SEC has also approved exceptions to the Alternative Uptick Rule for certain odd-lot transactions, certain domestic and foreign arbitrage transactions, overallotment or layoff sales, riskless principal transactions, and volume weighted average price ("VWAP") transactions. Notably, the SEC did not adopt an exception for bona fide market-making activities.

    For assistance with any of the issues addressed in this update, please contact any one of the Bracewell & Giuliani attorneys listed on the upper right-hand side of this page.
  3. Thanks for the info, encountered this yesterday on YRCW...
  4. I'd much rather deal with this than the old uptick rule.

    To the crybabies like Cramer who were whining for the return of the old uptick rule. ......... Suck it.
  5. Good info. It will be interesting to see how that impacts a news or earnings gap. If it can't get immediately shorted and slammed down by hedge funds/traders/algo programs, then a stock could have a vicious snap back at the open.

    Example: CSCO gapped down MORE than 10% on its recent earnings from prior day's close, yet still got continually slammed the whole day from the open. With this new rule, traders will be able to differentiate if the stock is being sold by real sellers (who already own the stock) vs short sellers (who have to borrow the stock but can't).
  6. d08


    What about OPG orders? Any restrictions there?
    These rules are ridiculous but I guess under certain situations I would even benefit. So, no point fighting windmills.
  7. jj90


    Great. Limit trading in equities. Absolutely retarded. Limit moves are only good when your on the right side of the move.
  8. Are all ETF completely exampt from any rules?
  9. sounds like stocks that are down hard will be thinner on the way down, causing even more volatile down moves when longs that want out will not have shorts covering. Who knows, its like six of one, half a dozen of the other. Bottom line is I don't think shorting has any real effect on the value of stocks.
  10. At first I was angry, but I now realize it just changes the game. I'm down
    #10     Mar 2, 2011