Last week, the CEOs of the NASDAQ OMX Group, NYSE Euronext, BATS Exchange, Inc., and the National Stock Exchange sent a joint letter to Chairman Mary Schapiro of the SEC. The letter commends the efforts of the SEC to curb naked short selling, but provides a response to recent discussion of reinstating the uptick rule for short selling.

The letter suggests that, rather than reviving the original uptick rule, the SEC should adopt a modified uptick rule that would permit short selling only by posting a quote for a short sale order that is priced above the national bid. This would make short selling permissible only at a price above the highest prevailing national bid. The letter states that the modified uptick rule is superior to the original uptick rule in that it “is conceptually simple, likely to be more effective in dampening downward price pressure, and easier to program into trading and serveillance systems than the original uptick rule.”

The letter also urges that the SEC adopt a “Circuit-Breaker” that would trigger the application of the Modified Uptick Rule only after the price of a stock has experienced a precipitous decline by a certain percentage.