Today the Securities and Exchange Commission (SEC) adopted rule 201 (The Alternative Uptick Rule), which will restrict short selling in listed securities that experience a 10% decline in one day as measured from the previous day’s close.
"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 L. Schapiro in an SEC release.
One the circuit breaker is triggered short sales will be restricted for the remainder of that day as well as the following day. The Securities and Exchange Commission today adopted a new rule to place certain restrictions on short selling when a stock is experiencing significant downward price pressure. The measure is intended to promote market stability and preserve investor confidence.
The measure, which was supported by Chairman Shapiro, was passed 3-2 on a party line vote with both Republican commissioners voted against. It will become effective 60 days after the date of publication in the Federal Register, however, market participants will have six months to comply with the requirements.
The rule does not include an exemption for options market makers. CBOE Chairman and CEO William J. Brodsky said in an e-mailed statement, "We're disappointed because of the potential impact on the options markets. Nonetheless, we are heartened by Commissioner Aguilar's remarks that the staff is expected to study the impact of the rule on the options markets and make adjustments to the rule, if warranted. Hopefully, if there are harmful impacts, the SEC will also take quick action to provide an exemption."
Click here for the release.