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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Friday, April 10, 2009

SEC Releases Proposals on Short-Selling

Following up on its meeting earlier this week, the SEC today released for comment the two proposals to restrict short sales.  Here is the introductory paragraph in its release:

The Securities and Exchange Commission (“Commission”) is proposing amendments to Regulation SHO under the Securities Exchange Act of 1934 (“Exchange Act”). We are proposing two approaches to restrictions on short selling – one is a price test that would apply on a market wide and permanent basis (“short sale price test” or “short sale price test restriction”) and one that would apply only to a particular security during severe market declines in that security (“circuit breaker”). With respect to the first approach, we propose two alternative short sale price tests: one based on the national best bid and the second based on the last sale price. With respect to the second approach, we propose two basic alternatives: one alternative is a circuit breaker rule that would temporarily prohibit short selling in a particular security when there is a severe decline in the price of that security (a “halt”), which could operate in place of, or in addition to, a short sale price test rule; and the second alternative is a circuit breaker rule that would trigger a short sale price test rule; we propose that such a short sale price test either be based on the national best bid for any security for which there has been a severe price decline or be based on the last sale price for any security for which there has been a severe price decline.

Comments are due 60 days after publication in the Federal Register.

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