The Securities and Exchange Commission has adopted the alternative uptick rule (Rule 201) restricting short selling on any stock that has dropped more than 10% in one day. The “circuit breaker” under Rule 201 would be triggered for a security any day in which its price declines by 10% or more from the prior day’s closing price. Once the circuit breaker has been triggered for a security, short selling would only be permitted when the price of that security is above the current national best bid for the remainder of the day as well as the following day.
Rule 201 generally applies to all equity securities that are listed on a national securities exchange, whether traded on an exchange or in the over-the-counter market, and requires trading centers to establish, maintain and enforce written policies and procedures that are reasonably designed to prevent the execution or display of a prohibited short sale. Rule 201 will become effective 60 days after the date of publication of the release in the Federal Register, and then market participants will have six months to comply with the requirements. Publication in the Federal Register is expected shortly.
The SEC press release announcing the rule can be obtained by clicking here.
Click here to read an August 2009 Katten Client Advisory for information on proposed short sale restrictions previously considered by the SEC.