The Securities and Exchange Commission, in a reversal, is considering bringing back a price rule to curb short sales.
At a hearing of the House Committee on Financial Services last month, SEC Commissioner Christopher Cox announced the regulator was studying whether or not it would be feasible to require the price at which a short sale occurs to be at least five cents or 10 cents over the last trade or current quote.
Any move by the SEC to reinstitute a price test would repudiate its actions of last year when, through Regulation SHO, it repealed the rule that forced traders to wait for an uptick before shorting. Cox noted at the hearing that the uptick rule has been largely toothless since 2001 when the industry went to decimalization and a tick became only 1 cent.
“Should there be a test that does work?” Cox asked. “Should there be something that is meaningful? If it can’t be a tick because a tick is now just a penny, and even when a stock is dropping like a stone it tends to — to drop with, you know, penny upticks along the way, is there a price test that could work with an increment of a nickel or a dime or what have you? And this the SEC is carefully studying even now.”
The initiative has its supporters and detractors. Congressman Gary Ackerman, a senior member of the committee, is in favor of some sort of price test and recently introduced legislation to reinstate the uptick rule.
Most industry officials are opposed however. “Any form of price test would not be practical or effective,” the Security Traders Association stated in a recent white paper it sent to Chairman Cox.
