Mary Shapiro, Chairman of the Securities and Exchange Commission, recently announced that the SEC plans to consider reinstatement of the so-called "uptick rule" in order to further stabilize the securities market. First adopted in 1934, the uptick rule permits short sales of securities only when the last sale price was higher than the previous price. In a short sale, an investor gambles that a stock will decline in price by "borrowing" the stock from a broker, selling the stock at the going rate, and then buying the securities back at a price that the investor hopes is lower than the original price before having to "return" the stock to the broker. Supporters of the uptick rule believe it provides protection against stock manipulation and market volatility, especially resulting from collusive "bear raids," in which short sellers join forces to drive down the price of a particular stock, often by spreading negative rumors about a company. The uptick rule was repealed in June 2007.
Alert March 20, 2009