U.S. stock exchanges may seek to impose a temporary ban on short sales for individual stocks that plunge as regulators seek to rein in short-selling.
The New York Stock Exchange and Nasdaq Stock Market may file their proposal with the Securities and Exchange Commission as soon as today, said three people who have seen a draft of the rule. Under the plan, a stock that closes down more than 20 percent would be protected from short sellers for the following three days, the people said.
NYSE Euronext Chief Executive Officer Duncan Niederauer and Nasdaq CEO Robert Greifeld have met with SEC officials in the past month to discuss the proposal. A final rule might change as regulators weigh other alternatives. The so-called circuit breaker against betting a stock will decline would add to rules the SEC imposed since September to restrict speculators who may have exacerbated the plunge in stock prices.
“I can appreciate the regulators trying to support the markets,” said Ron Geffner, a former SEC lawyer who now represents hedge funds at the New York-based law firm Sadis & Goldberg LLP. “I am surprised after several iterations with little to no benefit that they continue to go back to the same dry well. It’s hard to play a game when the rules change week to week. This is just another reason for people to stay on the sidelines.”