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Short selling: Regulation
Short selling: Regulation
Authors: TradingDay.com, -oo0(GoldTrader)0oo-, Goodemi, OwenX, JJay, Pakaran
Publisher: TradingDay.com, Version: 1
Regulation
Uptick rule
Responding to concerns over short-selling, the U.S. Securities and Exchange Commission (SEC) instituted an uptick rule in reaction to the Crash of 1929. The rule provides that a short seller cannot sell a stock short unless on an uptick or a zero-plus tick; this means the stock can only be sold short if the last non-zero "tick" (i.e. trade price) was higher than the preceding one. In doing so, U.S. market regulators are trying to make sure that short sellers are not, by themselves, causing the price depreciation, and that downwards pressure on the stock price is balanced by new buying demand.
On 2003-10-29 the SEC announced a one year pilot program to suspend the uptick rule for 1000 listed and NASDAQ traded stocks selected from the 3000 most liquid securities.
IPOs
In the U.S., Initial Public Offerings (IPOs) cannot be sold short for a month after they start trading. This mechanism is in place to ensure a degree of price stability during a company's initial trading period. However, some penny stock brokerages (also known as bucket shops) have used the lack of short selling during this month to pump and dump thinly traded IPOs. Canada and other countries do allow selling IPOs (including U.S. IPOs) short.
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