Reg SHO/Uptick, Short sales.

Discussion in 'Wall St. News' started by Don Bright, Jun 14, 2007.

  1. Well, it looks like they are actually going to abolish the uptick least it looks that way, here is the latest that I've seen.

    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.

    Complete story:

  2. MogulB


    Question for you or anyone who knwos this rule.

    Do the current rules permit a market maker to show a bid in L2 below market and the bid is really a short sale order?

    Other participants can not do this but can MM's?

    Thank you!
  3. 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.
  4. Please re-phrase the question. "bid is short sale order?" is what I'm having trouble with.

  5. MogulB


    If I am a market maker participant can I place a short sale limit order under the current market price, so it shows up on L2 on the bid ide (left side) of the L2 screen. Thus enabling the order to "look" liek a true bid to the naked eye, but inturn acutlly be a ssorder waiting for a uptick once the order gets to the last price.

    Basically I want to knwo if the MM can show a bid in L2 but the order is actully a ss order.

    The rest of us who enter a ss limit order will see the order on the ask side of the L2.

    Are the MM's in NASDAQ securities allowed to do this?

    Appreicate the insight big time!
  6. If you are on the bid, and you get hit, somebody has sold you shares. You are a buyer, not a seller. So, no that would not be a short sale on your part. Now, for the person who sold shares to you, it may or may not be a short sale as to them. Of course, that would depend upon whether they already owned the shares, or had borrowed them short.
  7. MogulB


    Correct if you are a non-market maker, but I want to know if a mm can show hsi ss limit orders on teh bid visually tricking th emasses by looking at the order in L2 and thinking it is inturn a real bid to BUY shares, but it is inturn a ss order waiting to short the security once it gets to that limit price.

    I do not knwo for sure and need to knos if a MM has the ability to do this?
  8. Kutty


    anyone know when this takes effect?
  9. If you go in to sell lower than the bid, the sale still shows up on the right side of the L2 screen, and you'll probably get filled immediately (especially when the uptick rule is gone).

    Quite often, especially in nasdaq, you'll see offers at lower prices than bids on the opposite side of the screen.

  10. See above - Buys on left side, sells and short sales on right side of L2 montage.

    #10     Jun 14, 2007