The Securities and Exchange Commission could propose restoring the so-called uptick rule, which it eliminated in July 2007, as early as next month. The rule requires short sellers_ those who try to profit from a stock's decline by selling borrowed shares — to sell at a price above a stock's most recent trading 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.
If a company stock was trading at $40.75 and a trader anticipated that it would decline, he could borrow shares but couldn't sell them until after the stock traded higher, or "ticked up," to at least $40.76.
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.