The SEC recently released its responses to frequently asked questions relating to Rule 201 of Regulation SHO. Rule 201 restricts the price at which short sales may be effected when a stock has experienced significant downward price pressure. Compliance with the new rule is required as of November10, 2010. Below are some of the answers to questions regarding Rule 201 that have been compiled by the staff.

  1. The current national best bid does not factor into the calculation regarding whether the price of a covered security has decreased by 10% or more from the covered security’s closing price as of the end of regular trading hours on the prior day. The covered security’s price is based on trades reported in the consolidated system for the covered security during regular trading hours.
  2. The determination regarding whether the Rule 201 circuit breaker has been triggered is limited to regular trading hours.
  3. If the national best bid and offer for a covered security subject to the short sale price test restriction of Rule 201 become crossed, a short sale order in the covered security may be displayed or executed at a price that is less than or equal to the current national best bid while the market is crossed.
  4. The short sale price test restriction, once triggered, will apply to short sale orders for the remainder of the day and on the next trading day and outside of regular trading hours.
  5. Rule 201 does not place any limit on the frequency or number of times the circuit breaker can be re-triggered with respect to a particular stock.

http://www.sec.gov/divisions/marketreg/rule201faq.htm