EXCHANGES PROPOSE MODIFIED UPTICK RULE AS DETERRENT TO ABUSIVE SHORT-SELLING

Posted March 24, 2009

NEW YORK – The New York Stock Exchange, the Nasdaq Stock Market and the BATS Exchange have responded to a proposal by the US Securities and Exchange Commission to combat abusive short selling with suggestions of their own for a “Modified Uptick Rule” and “Circuit Breaker” mechanism. The SEC plans to address short selling at its April 8 open meeting.

“We worked closely with the Commission to implement new rules and emergency measures in the wake of the market turmoil in late 2008,” says Chris Isaacson, Chief Operating Officer, BATS Exchange. “BATS is well positioned to continue playing an important role, along with other exchanges and the SEC, to help design and implement effective regulation aimed at curbing abusive short selling and other potentially manipulative practices. The Modified Uptick Rule and Circuit Breaker measures would go a long way towards dealing with this issue so critical to the success of US equity markets.”

The Modified Uptick Rule draws on the since-discontinued Uptick Rule, and would only allow initiation of short selling above the highest prevailing national bid by posting a quote for a short sale order priced above the national bid. Under the proposed rule, execution of a short sale could only happen at a higher price than the prevailing market at the time of initiation, and only on a passive basis, therefore preventing manipulative short selling.

The proposed Modified rule addresses the penny increment market structure now in place since the original rule existed and accounts for a market environment where transaction prices change multiple times per second and trading messages number in the billions each day.

The proposed Circuit Breaker mechanism would apply the Modified Uptick Rule in the event of a stock’s price experiencing a precipitous decline of a percentage that could be set by regulators.

“Markets have changed greatly since the original Uptick Rule was first implemented in the 1930s and it is important that modern markets have modern regulation,” says Robert Greifeld, Chief Executive Officer, Nasdaq OMX. “With the last sale price, or tick, of an actively traded stock sometimes changing hundreds of times in a single second, we have long believed the original uptick rule failed to deliver any prohibitive value. This more modern Modified Uptick rule will deliver critical protections from abusive short sellers to our publicly traded companies and their investors.”