Abusive Short-Sellers on 60-Day Notice

Updated from 11:04 a.m. EDT

The Securities and Exchange Commission has recommended several short-selling restrictions, including a reinstitution of the so-called uptick rule, to be enacted to help stabilize markets.

The five SEC commissioners voted unanimously to put five different proposed measures, representing two different approaches that would combat abusive short selling, out for a 60-day comment period. One approach would apply on a permanent basis for all securities, while the other would apply only to a particular security during severe market declines.

In the first approach, the commission would restore the old uptick rule or institute a modified version. The latter proposal would require trading centers to establish policies that prevent the short-sale of an order at a price below the prior sale. It is also based on the national best bid, similar to the former Nasdaq "bid" test.

During Wednesday's open meeting, one commissioner asked why the original uptick rule could not be restored immediately. One SEC staffer replied that the rule could be put back into place, but that "markets have changed so much, you can't put back the effect" of the old uptick rule.

If either proposal is adopted, it would represent a marketwide, permanent approach to curbing abusive short selling. The SEC also weighed in on three different circuit breakers that would mean a security-specific, temporary resolution.

The first proposed circuit breaker, dubbed a halt rule, would impose a ban on short-selling in a particular security for the day if a stock falls below 10% in a single trading session.