Today, the SEC reopened the comment period on its short-sale rule proposals and released an additional proposal that differs in some important respects from the competing “uptick” and “modified uptick” rules proposed earlier this year. In announcing the new proposals the SEC stated that the new proposal may “be more effective and easier to implement than previously proposed price test restrictions currently under consideration.”
The new proposal, dubbed the “alternative uptick rule," is a variation of the previously proposed “modified uptick rule.” The alternative uptick rule, like the proposed modified uptick rule, would use the current national best bid as a reference point for short sale orders. However, unlike the proposed modified uptick rule, the alternative uptick rule would not allow short selling at the current national best bid. Generally, in an advancing or declining market, the alternative uptick rule would only permit short sales at a price above the current national best bid. Because of this requirement, the alternative uptick rule would not allow short sales to get immediate execution, even in an advancing market, and therefore would restrict short selling to a greater extent than either of the other proposed uptick rules.
In its previous proposal, the SEC suggested two approaches in the application of short selling price tests. The first approach, a market wide permanent price test applicable to all registered securities, would restrict short sales based on either the last sale price or the national best bid. The second approach involves a security specific price test, and would be triggered only upon a severe decline of the specific security’s price. The SEC has asked for comment on the alternative uptick rule as a permanent market-wide approach, and whether the proposal should be combined with the second “circuit breaker” approach. The SEC has reopened the comment period for the original proposal for 30 days from the publication of the new proposal in the Federal Register.
Late last month, the SEC announced several other steps that it would be taking in its ongoing efforts to address abusive short sales.