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Ronald Jordan
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Understanding Your Data is No Longer Optional

In this contributed article from Global Markets Advisory Group, the advisory discusses the importance of data and how organizations should augment existing skill sets and capabilities to add a data-focused perspective to their operating fabric.

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January 1, 2007

SEC to Ban Short-Sale Price Tests

By Peter Chapman

The Securities and Exchange Commission, following a two-year trial period, is proposing to permanently abolish price tests for short sales.

If the regulator gets its way, traders will remain free to short stock on a downtick, something they've been able to do so since May 2005. That's when the SEC instituted a pilot program as part of Regulation SHO that temporarily abolished the 67-year-old price-test rules.

The move by the regulator follows the completion of studies done on the effects of the nearly two-year-old Reg SHO trial on market quality.

According to the studies by the SEC and three groups of university professors allowing traders to short on a downtick did not adversely affect the market,

The pilot, or Rule 202T, is part of a package of rules comprising Reg SHO that went into effect in May 2005 and is slated to end this August.

The pilot temporarily eliminates Rule 10a-1 of the Securities Exchange Act of 1934 and former NASD Rule 3350.

Also under the SEC's proposal, the self-regulatory organizations will not be able to impose their own price-based restrictions on short selling. That idea has been met with protest from the exchanges previously.

Industry members have until next month to comment on the proposal.