SEC Approves New Short Sale Rule

Wednesday, February 24, 2010

The Securities and Exchange Commission voted 3-2 today to adopt a rule hoping to slow the decline on stocks taking a beating. Essentially the SEC has reinstated the uptick rule on stocks that have fallen 10% in a single trading session. Once a stock hits the down 10% threshold on a day short-selling curbs will be implemented. Entering a short position will then only be allowed above the national best bid for the rest of the day and the following day.

Clearly, the idea is to slow the rate of decline and limit short sellers from pounding the bid in rapidly falling stocks. This could have interesting implications for stocks that hit the 10% threshold with high short interest. There is the possibility that an artificial short-term floor will be put in at that level. As active traders, it would be worthwhile to be aware of the level going forward as your stock approaches it.

This vote effectively ends over a year of debate about short selling curbs after the rapid collapse of many financial companies in the Panic of 2008. The rule will go into effect 60 days after it is published in the federal register and then companies have 6 months to comply.
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