SEC to Consider Uptick Rule in April: Schapiro

SEC Chairwoman Mary Schapiro told the Senate Banking Committee Thursday that the Commission will consider proposals for a reinstatement of the uptick rule on April 8.
Publish date:

Updated from 10:34 a.m. EDT

The chairwoman of the

Securities and Exchange Commission

told a Senate committee Thursday that the agency will consider reinstating the so-called uptick rule at its next meeting in early April.

During a hearing Thursday before the Senate Banking Committee, SEC Chair Mary Schapiro said that in addition to proposals regarding the uptick rule, the firm will also consider some sort of bid test, a circuit breaker, or a combination of those. The SEC's next open meeting is scheduled for April 8 in Washington.

"To target potentially abusive 'naked' short selling in certain equity securities, the Commission has tightened up the close-out requirements and adopted a new antifraud rule specifically aimed at abusive short selling when it is part of a scheme to manipulate the price of a stock," Schapiro said. "And, early next month, the Commission will consider proposals to re-institute the uptick rule, or something much like it."

The uptick rule, instituted by the SEC following the Great Depression, said that the short selling of stocks could be done only after the share price ticked higher above the prior sale. The rule was designed as a guardrail that slowed down the short selling process, preventing short sellers from driving the price of a stock at a faster clip.

In a short sale, an investor can borrows a stock from a broker, sell it to other investors, and buy it back at a lower price before returning it to the original lender. The difference in the transactions is kept as a profit.

The SEC made the controversial decision to eliminate the uptick rule in June 2007 after its analysis showed it did little to prevent the manipulation of shares prices given the proliferation of electronic trading. Of course, many market participants point to the SEC's decision as the catalyst that helped short sellers thrive in 2008.

The argument is that the lack of a rule that required share prices to tick higher before more short sellers could pile in created an environment where shorts could accelerate the failures of a number of companies, especially financial names like

Bear Stearns


Lehman Brothers


Washington Mutual


Other financial names, like


(C) - Get Report


Bank of America

(BAC) - Get Report



(AIG) - Get Report


Goldman Sachs

(GS) - Get Report


Morgan Stanley

(MS) - Get Report

, have also seen share prices driven down dramatically, with many attributing the moves lower to short sellers benefitting from the suspension of the uptick rule.

Before Thursday's hearing, many were hoping Schapiro would offer more concrete plans for addressing concerns about the lack of an uptick rule. Sen. Ted Kaufman (D., Del.) and Sen. Johnny Isakson (R., Ga.), who earlier this month co-sponsored a bill that seeks to

reinstate the uptick rule

, said they were "cautiously optimistic" following Schapiro's testimony.

"While we're encouraged the SEC will consider the uptick rule, its reinstatement in some form alone is insufficient in our view," Sen. Kaufman and Sen. Isakson said in a joint statement Thursday. "The SEC needs to send a clear signal that it's committed to meaningful change through strong regulations and enforcement to ban abusive short selling."

Earlier in the week, the BATS Exchange, along with the

New York Stock Exchange

and the


, said in a comment letter that a

modified uptick rule

and circuit breaker would help deal with the critical issue facing the U.S. equity markets.

Sen. Kaufman and Sen. Isakson also said that just as the exchanges wrote to the SEC earlier this week, "continuously attacking abusive short selling and manipulative activities is critical to restoring the public's confidence in the financial markets."

Schapiro's comments on a possible reinstatement of the uptick rule were part of a broad agenda the chairwoman unveiled Thursday. She also said she will ask the Commission to consider taking action related to short selling, money market fund standards, investor access to public company proxies, credit rating agencies, and controls over the safekeeping of investor assets.

Schapiro also had sharp criticism for the lack of proxy access, arguing that investors "need accurate and comprehensive information not only when they trade but also when they vote, whether it is to elect directors, adopt compensation plans, approve transactions, or consider shareholder proposals.

"Speaking for myself, I believe the SEC has not gone far enough in this latter area," she said. " And so I intend to make proxy access - meaningful opportunities for a company's owners to nominate its directors - a critical part of the Commission's agenda in the coming months."