U.S. Rep. Gary Ackerman (D., N.Y.) on Friday reintroduced legislation to reinstate a Great Depression-era regulation that curbed the short selling of stocks when prices are falling, which the
Securities and Exchange Commission
repealed in 2007.
The "uptick rule" requires that short sales of stocks -- in which investors borrows a stock and then sells it, in the hopes that the price will decline and they can buy it back for cheaper and return it to the original owner -- only be entered after a trade that caused the last price to increase. It had been in place since 1938 before the SEC did away with it.
"In the wake of the elimination of the uptick rule, the value of many volatile stocks have plummeted due to an onslaught manipulative short sale practices," Ackerman said in a press release. "Reinstatement of the uptick rule is essential to rein in these abuses and restore much-needed stability and confidence to our financial markets."
Ackerman enlisted the help of Charles Schwab in pitching the idea to Congress. The founder of
retail brokerage wrote an op-ed column in
The Wall Street Journal
in December, advocating the reinstatement of the uptick rule.
"This is a critical and necessary step to reduce volatility and restore investor confidence" Schwab wrote in a letter to lawmakers. "The SEC should move on its own to restore the uptick rule, but if it won't, this legislation will compel the agency to do so."
This article was written by a staff member of TheStreet.com.