2009 VSB Media Report

31 Cox failed to convince a majority of SEC commissioners last year to reinstate the regulation or create a modified version that was easier for brokerages to implement. The agency eliminated the uptick rule after SEC and academic studies showed it didn’t work in markets dominated by electronic trading.

‘Psychologically Damaged’ NYSE Euronext Chief Executive Officer Duncan Niederauer said late yesterday that he supports bringing back the uptick rule.

“When markets are psychologically damaged like they are right now, I actually think it would go a long way to adding confidence,” he said at the Museum of American Finance in New York. “We at least owe the investing community an answer. No more rhetoric, no more maybes, just what are we going to do.”

The December SEC report examined the benefits of barring short sales unless they were done at prices at least 1 cent higher than the last trade. While more than 58 percent of short sales would be delayed or barred by such a requirement, the impact lessens in times of panics, according to the 28-page study. Short sellers would be able to execute as much as 57 percent more trades in certain stocks when the market slides, compared with times when prices are steady, the report shows.

Effective Ban The SEC also considered raising the threshold to as much as 5 cents. For increments of 4 cents or more, the uptick rule would effectively ban short sales, a policy counter to the agency’s position. In October, the SEC said short selling plays an “important role” by increasing liquidity, helping traders hedge other assets and curbing speculation.

A separate SEC analysis concluded that in September, when the S&P 500 lost 9.1 percent, short sales were more common during rallies than declines.

“We found that a short-sale price test would be most restrictive during periods with little volatility,” Aromi and Caglio wrote in the report. “Our results are inconsistent with the notion that, on a regular basis, episodes of extreme negative returns are the result of short selling activity.”

John Nester, a spokesman for the SEC, said that while Schapiro plans to review the issue, there is no specific proposal under consideration. Aromi didn’t return a call seeking comment, and Caglio referred questions to Nester. Fed spokeswoman Michelle Smith didn’t respond to a request for comment.

Prudent Bear Fund David Tice, who sold his short-selling fund to Pittsburgh- based Federated Investors Inc. last year, said he wouldn’t be hampered if the uptick rule were brought back. The $1.28 Villanova School of Business 2009 Media Report