Nasdaq OMX and NYSE Euronext, despite protests from the trading community, are working with the Securities and Exchange Commission to devise new rules to limit short selling.The SEC’s three emergency orders targeting short sellers are due to expire next week, but are likely to be extended for a short while, exchange executives believe. The principal emergency rule is a ban on shorting nearly 1,000 financial securities. Any new rules could encompass all securities—both financial and non-financial.“There needs to be a market wide solution,” NYSE Euronext president Duncan Niederauer told NYSE-listed companies in a webcast on Wednesday. “Whether it is a bid test rule or some kind of modified tick test rule you can safely assume that is what we are discussing with the regulators now.”He added: “We realize that it is not just the financial stocks or companies that got on the list that are subject to some of these allegedly predatory practices. The conversation we are having with the SEC is about a market wide rule, not a sector-specific rule.”Nasdaq says it is also working with the SEC on crafting new short sale rules. “We have circuit breakers that protect the market against violent swings,” Bob Greifeld, Nasdaq’s chief executive, told Traders Magazine, “and we are recommending to the SEC that there be circuit breakers to provide protections related to short selling.”Not surprisingly, many traders oppose any expansion of short selling rules. The Security Traders Association, in a letter to the SEC, called for a “time out” on the expansion of the SEC’s emergency order restricting shorting in the financial names. It wants any new rules or extensions to be subject to public comment.“These historically important trading practices [should] not undergo further restriction, either in duration or number of issues, beyond October 2, 2008, without the opportunity for public comment,” the STA said in a statement.
