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SEC may reinstate rule to restrict short selling

SEC may reinstate rule to restrict short selling

Federal regulators next month may consider reinstating a Depression-era rule restricting certain trades betting against a stock that some lawmakers say is needed to help restore investor confidence in the battered markets.
The Securities and Exchange Commission could propose restoring the so-called uptick rule, which it eliminated in 2007. The rule prohibits short selling _ the sale of borrowed stock _ except when the previous sale of a stock raised its price.
The SEC "may conduct a public meeting as early as next month to consider whether to formally propose reinstatement of the uptick rule, or consider other measures related to short sales," agency spokesman John Nester said Tuesday.
Short-sellers bet against a stock. The practice, which is legal and widely used on Wall Street, involves borrowing a company's shares, selling them, and then buying them when the stock falls and returning them to the lender. The short-seller pockets the difference in price.
Proponents of restoring the uptick rule, which had been in effect since 1938, say its elimination helped fuel the volatility on Wall Street amid the financial crisis and the pounding of company stocks targeted by market speculators.
SEC Chairman Mary Schapiro said at her confirmation hearing in January that reinstatement of the rule was among the issues she wanted the agency to consider.
Rep. Barney Frank, chairman of the House Financial Services Committee, said he had spoken with Schapiro and she told him the agency would take up the issue soon.
"I'm hopeful that the uptick rule will be restored within a month," Frank told reporters Tuesday.
Rep. Gary Ackerman has proposed legislation that would order the SEC to reinstate the rule, saying it was "essential to rein in these abuses and restore much-needed stability and confidence to our financial markets."
The SEC last fall adopted measures aimed at imposing protections against abusive "naked" short-selling. That occurs when sellers don't even borrow the shares before selling them, and then look to cover positions immediately after the sale.
Schapiro is scheduled to appear Wednesday before a House Appropriations subcommittee in her first congressional testimony since becoming SEC chairman.