Monday, August 17, 2009

S.E.C. Proposes Alternative Uptick Rule

August 17, 2009, 12:42 PM

The Securities and Exchange Commission said Monday it was reopening the comment period on a proposed “uptick rule,” as it considers a new approach to bringing back the controversial restriction.

In April, the S.E.C. proposed two approaches to restricting short selling by reinstating the uptick rule, which was lifted in 2007. The first would apply to all stocks at all times. The second approach, considered a “circuit breaker,” would apply only to a particular stock during severe declines in the price of that stock.

Now, the S.E.C. is seeking public comment on an alternative that would allow short selling only at an increment above the national best bid at the time. The commission said that the alternative uptick rule would not require monitoring of the sequence of bids — that is, whether the latest bid was higher or lower than the previous one — as the two originally proposed, and as a result, would be easier to monitor.

The uptick rule was put in place in the 1930s in an attempt stabilize the markets. The rule was abolished two years ago, allowing investors to bet against stocks whose price was falling.

Many market participants and companies have blamed the repeal of the rule for increased volatility in stocks, although there is disagreement about how closely the two are connected.

The new comment period will last for 30 days.

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