In a letter to the US Securities and Exchange Commission, the exchanges (BATS Exchange, Nasdaq OMX Group Inc., the National Stock Exchange and NYSE Euronext) proposed new restrictions on short selling. The proposal comes as the SEC considers restoring the uptick rule, which was scrapped back in 2007 — a step that some have blamed for aggravating the turmoil in financial stocks last year.

The letter from the exchanges states that “…under our modified uptick rule, short selling can only be initiated at a price above the highest prevailing national bid by posting a quote for a short sale order priced above the national bid. As such, the execution of a short sale would occur only at a higher price than the prevailing market at the time of initiation, and only on a passive basis.” The markets went on to state that, “This restriction would greatly assist the prevention of manipulative short selling, which is so harmful to the markets.”

Bob Greifeld, CEO of Nasdaq OMX, commented, “Markets have changed greatly since the original uptick rule was first implemented in the 1930s and it is important that modern markets have modern regulation. With the last sale price, or tick, of an actively traded stock sometimes changing hundreds of times in a single second, we have long believed the original uptick rule failed to deliver any prohibitive value. This more modern modified uptick rule will deliver critical protections from abusive short sellers to our publicly traded companies and their investors.”

IE