On August 17, 2009, the US Securities and Exchange Commission (SEC) issued a release (the “New Proposal”)1 announcing that it had (i) re-opened the comment period on its prior release proposing alternative means for potentially regulating short sale price tests (the “Prior Proposal”)2 and (ii) proposed an additional price test for commenters’ consideration (an “alternative uptick rule”). The comment period for both the New Proposal and the Prior Proposal will end 30 days after the New Proposal is published in the Federal Register.

Unlike the price tests of the Prior Proposal, which limited the ability of a short-seller to sell short based on the current bid or sale price in relation to previous bid or sale prices, the newly proposed alternative uptick rule would require that all short sales be made at an increment higher than the current national best bid for the security.3 In the New Proposal, the SEC acknowledged that this requirement would place a higher burden on short selling than the previously proposed alternatives but indicated that it might be simpler and less costly to implement. The SEC held open the possibility of implementing the alternative tick test either as a market-wide price test or as a circuit breaker; the SEC also noted that it might call for a “policies and procedures” approach or a flat prohibition.

The issuance of the New Proposal and the SEC’s upcoming roundtable scheduled for September 30, 2009, suggest that short sale regulation will remain in flux in the United States for at least the near term.