From the Regulators

SIFMA unconvinced rule will benefit investors

By James Langton |

The U.S. Securities and Exchange Commission has adopted a new rule that will place certain restrictions on short selling when a stock is undergoing a heavy sell off, the regulator said Wendesday.

The so-called “alternative uptick rule” is designed to trigger a circuit breaker, which restricts short selling from driving down the price of a stock that has dropped more than 10% in one day. At that point, short selling would be permitted if the price of the security is above the current national best bid. Once the circuit breaker has been triggered, the alternative uptick rule would apply to short sale orders in that security for the remainder of the day as well as the following day.

“The rule is designed to preserve investor confidence and promote market efficiency, recognizing short selling can potentially have both a beneficial and a harmful impact on the market,” said SEC chairman, Mary Schapiro.

It is important for the commission and the markets to have in place a measure that creates certainty about how trading restrictions will operate during periods of stress and volatility.”

The Securities Industry and Financial Markets Association expressed skepticism about the rule’s likely effectiveness.

“While the alternative uptick rule approach the SEC has adopted today is perhaps less disruptive than others that were considered, we are not convinced that implementation of this rule will provide net benefits to the capital markets and investors,” said Ira Hammerman, senior managing director and general counsel at SIFMA.

“We will continue to work with the commission through the implementation process for this rule, and on other regulatory efforts to ensure appropriate protections for investors with minimal impact on the efficient operations of the capital markets.”

The rule 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.