SEC May Approve Restrictions on Short Sales

Discussion in 'Wall St. News' started by flytiger, Jan 23, 2010.

  1. Frank is telling people this is a "done deal". There will be legislation. So, all the guys who naked shorted and pocketed the dough leave the rest of us high and dry.

    SEC May Approve Restrictions on Short Sales When Stocks Plunge
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    By Nina Mehta

    Jan. 23 (Bloomberg) -- Concern that short-sellers accelerate stock declines may prompt the Securities and Exchange Commission to adopt a rule next month aimed at curbing bearish bets when equities are plunging.

    The regulation would require the trades be executed above the best existing bid in the market when shares fall 10 percent in a day, said Brian Hyndman, the senior vice president in transaction services at Nasdaq OMX Group Inc. In a short sale, an investor borrows an asset and sells it, hoping to profit from a decrease by repurchasing it later at a lower price.

    Forcing short sellers to wait for a stock to rise above the best price bid may prevent them from flooding the market with sell orders and causing losses to multiply. Some exchange officials say the restrictions known as uptick rules don’t work, citing studies that show they may be less effective during panics that drive prices down and volatility up.

    “There is no empirical data to support the introduction of a new rule,” Hyndman said yesterday at a securities industry conference in Chicago. “But this is the least intrusive of the proposals the SEC was considering.”

    Hyndman expects the SEC to adopt a so-called alternative uptick rule that includes a 10 percent trigger, changing regulations that were eliminated from U.S. markets in 2007. The commission asked the public last April to comment on strategies to cushion the impact of short selling following criticism that hedge funds and other speculators used trading tactics to deepen market retreats that began in 2008.

    SEC spokesman John Heine declined to comment.

    Computer Upgrades

    The Standard & Poor’s 500 Index dropped 9.1 percent in September 2008 after New York-based Lehman Brothers Holdings Inc. filed the biggest-ever bankruptcy. The SEC implemented a ban on short selling more than 900 financial stocks that month after Morgan Stanley Chief Executive Officer John Mack and New York Senator Charles Schumer blamed the practice for driving companies to the brink of collapse.

    The implementation date for the new rule is likely to be later in the year, according to Hyndman, who didn’t say what he was basing his estimate on. He said exchanges and brokers will probably have 180 days to upgrade their computer systems to accommodate the regulation.

    Nasdaq in New York, Kansas City-based Bats Exchange and Jersey City, New Jersey-based Direct Edge Holdings LLC, which operates two alternative trading centers, have told the SEC that no new restrictions on short selling are needed. Paul Adcock, executive vice president in charge of trading at NYSE Arca, a unit of New York-based NYSE Euronext, said that while most exchanges oppose a new regulation, it’s probably inevitable.

    Potential Impact

    “Because the politicians and the public are all banging the drums, we’re not going to get away with this one,” Adcock said about the reluctance of exchanges to support new short- selling restrictions.

    The SEC discussed the potential impact of such a rule when it proposed the alternative uptick last August. Because it would restrict short selling more than other proposals being considered, the regulation might “lessen some of the benefits of legitimate short selling, including market liquidity and pricing efficiency,” the commission said.

    When the SEC proposed the alternative uptick rule, it said it would be easier for exchanges and brokers to implement than the former regulation that operated on the New York Stock Exchange for almost 70 years before its removal in 2007. That rule would no longer make sense in a marketplace of automated trading, the commission said.

    No Trigger

    The rule was proposed to the SEC last March by NYSE Euronext, Nasdaq, Bats and the Chicago-based National Stock Exchange. NYSE Euronext last June said it preferred a different bid test with no 10 percent threshold.

    NYSE Euronext’s Adcock raised concern at yesterday’s conference that so-called circuit breakers setting off the restriction might keep stocks from falling as much as they should when a company reports bad news.

    “Do you trigger the 10 percent when the stock should be trading down?” Adcock said. The trigger would be mandated uniformly across trading venues when a stock declines by the specified percentage.

    Daniel Aromi and Cecilia Caglio, economists at the SEC in Washington, said in a December 2008 report to former Chairman Christopher Cox that even with uptick rules in place, short sellers in a simulation executed trades 25 percent faster on average when stocks plunged than when prices were steady.

    To contact the reporter on this story: Nina Mehta in New York at
  2. Candace


    NYSE Euronext, Bats Extend Circuit Breakers to April

    Dec. 8 (Bloomberg) -- NYSE Euronext, Bats Global Markets and Direct Edge Holdings Inc., asked the U.S. Securities and Exchange Commission to extend the pilot program for circuit breakers on stocks to April 11.

    They requested more time to assess trading curbs for stocks implemented after the May 6 plunge that briefly erased $862 billion in equity value before the market rebounded. Bats submitted its filing yesterday. Ray Pellecchia, a spokesman for NYSE Euronext, and Rafi Reguer of Direct Edge confirmed their companies’ filings. The pilot program is due to expire Dec. 10. Silvia Davi, a spokeswoman at Nasdaq OMX Group Inc., didn’t immediately comment.

    Exchanges are working with the SEC and Financial Industry Regulatory Authority to update the single-stock circuit breaker program implemented in June to include limits on how much prices can swing before trading is halted. The curbs currently stop trading in a security across venues when its share price moves 10 percent in five minutes. The halt, which lasts five minutes, applies to companies in the Standard & Poor’s 500 Index or Russell 1000 Index and more than 300 exchange-traded funds.
  3. buy any dips
  4. rew


    Why no analogous rules for when too many people buy a stock, pushing it up to ridiculous levels?
  5. market makers can still short stocks. but they can't do market sell orders. when price is falling.

    it means less volume and fees for the exchanges. a lot of these large volume traders hedge their tradess via long and short positions. and when the price is falling the ask is never sold.

    volume is so thin once it took long time to fill or no fill for limit orders.. only market orders get filled. immediately

    market will be even be more less iliquid as no bidders. and no shorts covering intra-day
    this is the same SEC that says you need $25,000 to daytrade.

    the guys at SEC or powers to be must want the market to not go down to pass this rule now. or don't want to buy the market sell orders from shorts.
    they ban market sell order shorts at 52 week high go figure.

    wonder why didn't implement this rule at march 2009...a=holes that is why...they make rules that benefits the powers to be.

  6. S2007S


    I ask the same damn question.

    Look at the new ipos issued today, one up 170%+ the other up 90%.

    No Circuit breakers there.

    Got to just love the manipulation and games they play on wallstreet, it just keeps getting better. Where has the risk gone!!!
  7. the fall of 2002 they still had the uptick rule and people could still daytrade with less than 25K and the market still melted...

    traders don't matter in this thin matter..there arent' that many traders and mostly robots or algos by hedge funds professional traders. 70% of volume is done by machines.

    the market will rise or fall regardless. of uptick rule it just traders can't profit as much. or profit from a crash in stocks.
    vice versa. short stocks is easier and more profitable than futures.and bigger than options and futures... with stocks you can short like in the billions.