(Washington, DC) - U.S. Rep. Gary Ackerman (D-NY), a Senior Member of the House Financial Services Committee, today introduced legislation that would reinstate the uptick rule, a regulation that required all short sale stock transactions to be conducted at a price that was higher than the price of the previous trade.

For reasons not fully understood, the Securities and Exchange Commission (SEC) rescinded the uptick rule last year (in July 2007) after the regulation had been in place since 1938. The Congressman’s bill mandates that the SEC reinstate the uptick rule within 90 days of the legislation’s passage.

“In the wake of the elimination of the uptick rule, many volatile stocks that the regulation was designed to protect are being driven down as a result of manipulative short sale practices,” said Ackerman. ”Reinstatement of the uptick rule would help curb these abuses and ensure greater stability and confidence in the market. Under the uptick rule, fewer companies would fail, less investors would be driven out of the market, and more capital would remain in our stock markets.”

In a short sale, an investor borrows shares of a stock from a broker, sells it to others, and then hopes to buy it back at a lower price before returning it to the lender. The difference – if any – is kept as a profit.

The uptick rule was designed to prevent short sellers from being the only investors to cause a stock price to decline. Under the rule, a short sale could only be entered after a trade that caused the last price to increase 

Yesterday, the SEC implemented a limited version of the uptick rule when its Chairman, Christopher Cox, issued an emergency rule to limit naked short sales, where traders sell shares that they have not borrowed or do not intend to borrow. Under this 30-day regulation, the SEC will require that investors own or actually borrow shares of stock before completing a short sale. The rule, which applies to 19 major financial companies, will take effect July 21.
 

###

Return to Gary's Homepage