The American Bankers Association, a critic of unregulated short selling, wants the Securities and Exchange Commission to adopt a market wide bid test as part of any reform of Regulation SHO.
The organization, which says it represents the vast majority of the nation’s banks, filed a comment letter with the SEC last week asking the agency to bring back a short sale price test. The SEC, in April, proposed amending Regulation SHO, which deals with short selling, with new restrictions.
The ABA says its members have complained that short sellers have taken advantage of the 2007 repeal of the "uptick" rule to put unwarranted downward pressure on their stocks in the past year.
"Those of our members that have relatively small market capitalizations, are thinly traded and have little to no analyst coverage believe that reinstatement of the uptick rule, in some format, is extremely important," Sarah Miller, an ABA senior vice president, told the SEC.
The ABA wants the SEC to institute its "modified uptick rule" proposal, one of five possibilities suggested by the SEC. The price test rule would take as a reference price the consolidated best bid rather than the last sale price as did Rule 10a-1, or the uptick rule. The ABA wants any price test to last all day and cover all securities. It does not want a circuit breaker/bid test that would only cover a specific security that fell by a certain percentage.
The ABA also does not favor a circuit breaker/halt rule which would temporarily ban short selling in a given stock if the security tripped the circuit breaker. The ABA, like other critics, is concerned about the so-called "magnet" effect of a circuit breaker/halt that would create significant levels of short selling as the stock approached its circuit breaker trigger point.
The comment period for the SEC proposal has ended and the industry is awaiting the regulator’s next move.
