On April 8, the Securities and Exchange Commission voted unanimously to seek public comment on whether short sale price restrictions or circuit breaker restrictions should be imposed and whether such measures would help promote market stability and restore investor confidence. Specifically, the SEC is seeking comment on five proposals.

Two of the proposals would entail market-wide permanent rules covering all NMS securities (i.e., generally exchange-traded securities).

  • Modified Uptick Rule—A market-wide short sale price test based on the national best bid.
  • Uptick Rule—A market-wide short sale price test based on the last sale price or tick.

Three of the proposals would entail a security-specific, temporary rule (“circuit breaker”) covering triggered NMS securities. While the SEC has asked for comments on the “trigger percent,” the proposal mentioned 10% as a starting point.

  • Temporary Ban on Short Selling—Ban short selling in a particular security for the remainder of the day if there is a severe decline in price in that security.
  • Temporary Modified Uptick Rule—Impose a short sale price test based on the national best bid in a particular security for the remainder of the day if there is a severe decline in price in that security.
  • Temporary Uptick Rule—Impose a short sale price test based on the last sale price in a particular security for the remainder of the day if there is a severe decline in price in that security.

There will be a 60-day comment period to a allow for comments on the proposals. In particular, the SEC asked for comments on possible exceptions to proposed rules. It should be noted that the initial proposals will not contain a market maker exception.