WASHINGTON (CN) – The Securities and Exchange Commission has reopened the comment period on a proposal published April 8. The rule would re-implement short sale price restrictions based either on specific stocks that go into decline, or a market wide rule that would require a bid for a short sale to be higher than the previous best national bid.
Specifically, the SEC says it is interested in public comment on the alternative uptick rule that would allow short selling only at a price above the last sale price, not the best national bid. Such an approach might be less cumbersome for automated and electronic trading because it would not require monitoring of the sequence of bids, since only the previous bid is used.
Uptick rules were first implemented during the 1930’s to bring stability to the markets during the Great Depression. The uptake rule remained in place for 70 years until the last years of the Bush Administration, when the SEC abandoned the rule. Critics of that action argue that the absence of an uptick rule allowed the financial meltdown of the last year because short sellers were able to flood the market with stocks creating the appearance of a deteriorating stock price which further drove prices down.