If SEC Is Going to Restrict Short Selling, Best Option Is an Always-On Bid Test

By: Ray Pellecchia

File Under: NYSE, NYSE Amex, NYSE Arca, NYSE Euronext, NYSE Regulation

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NYSE Euronext earlier this week filed a comment letter with the Securities and Exchange Commission on the SEC's proposed amendments to Regulation SHO. Translation: here's our point of view on restricting short selling.

The letter is 10 pages of reasoned analysis of the various alternatives the SEC put forward in its proposal. Recommended reading. For the benefit of those without the time or the attention span, the letter concludes with this:

Conclusion

NYSE Euronext applauds the Commission for its ongoing leadership and careful consideration of how to properly regulate short sales, and appreciates that none of the options is perfect. Nevertheless, we strongly believe that an always-on bid test is a known commodity (since it was in place for a number of years) and would therefore be easiest to implement and apply. Moreover, we believe it represents the best balance between restrictions and operability, and would therefore promote public confidence without unduly inhibiting legitimate short-selling. An alternative uptick rule, by contrast, would unduly restrict legitimate short-selling to the detriment of the market. In the event that the Commission nonetheless concludes that an alternative tick test is the most appropriate regulatory approach to short selling, it is essential that rule be paired with a circuit breaker approach and appropriate exemptions, so that there is a more appropriate balance between restrictions and operability.

The comment period on the SEC proposal closed on 21 Sept., but mine is always open, in the comment box below.

And on a slightly less-serious note, tomorrow is National Punctuation Day! Ah, punctuation, an increasingly disregarded but nonetheless critical component of good writing and clear expression. To celebrate, let me know your favorite punctuation mark (I've always been partial to the question mark, myself) or try out this recipe for the Official Meat Loaf of National Punctuation Day. Yes, National Punctuation Day has an Official Meat Loaf. Enjoy -- exclamation point!