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SEC signals no need to rush restrictions on 'short sellers'

April 6, 2009 | 11:39 am

The Securities and Exchange Commission won't hurry possible new rules to rein in “short sellers,” Chairwoman Mary Schapiro said today.

The SEC on Wednesday will consider restrictions on short sellers, bearish traders who borrow stock and sell it, betting the price will drop. The shorts have been blamed for deepening the bear market and, in particular, for fueling the drastic declines in many financial stocks over the last year.

At a minimum, many critics of short sellers want the so-called uptick rule restored. That rule, which the SEC revoked in 2007 after it had been on the books since 1938, required a short seller to wait for an uptick in a stock’s price before shorting it. The idea was to eliminate the potential for a cascade of short sales that could send a stock into a death spiral.

Maryschapiro Schapiro, speaking to reporters after giving a speech in Washington, said the commission would reconsider the uptick rule, and also would look at a “circuit breaker” proposal from major stock exchanges to limit short selling in a stock after the price has fallen by a specific percentage.

There had been speculation that the SEC might act quickly on new short-selling restrictions. But Schapiro indicated she wasn’t in any rush, and wanted to get feedback from investors.

From Bloomberg News:

The SEC will likely take public comment on its various proposals for 45 days before commissioners decide whether to hold a second public meeting to make any rules binding, Schapiro said. The agency also plans to hold a roundtable on short-selling so investors, experts and market participants can discuss the proposals, she said.

In September, the SEC temporarily banned short-selling of all financial stocks. The prohibition was approved behind closed-doors as an “emergency order” under then-SEC Chairman Christopher Cox. Schapiro said she would be hesitant to re-impose a ban on short-selling.

“I’m pretty uncomfortable, and I think the commission is as well, with doing emergency orders unless absolutely essential,” she said.

-- Tom Petruno

Photo: SEC Chairwoman Mary Schapiro. Credit: Jay Mallin / Bloomberg News

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