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In a Hurry to Sell Short?

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For short sellers in a hurry, the good news is you won’t have to wait for an uptick anymore to sell short. The SEC has removed for good a longstanding obstacle to the short sale of stocks, eliminating the “tick” test. On the other hand, you’d better be ready to settle that short sale, as there will be no more grandfathering of positions that don’t settle on time. They will be closed out if not settled “within 13 consecutive settlement days,” the SEC announced in an attempt to prevent long-term “fails” to settle short trades. In final revisions to Rules 200 and 203 of Regulation SHO, the SEC pledged to “further reduce fails to deliver in certain equity securities by eliminating the grandfather provision,” according to the June 13 SEC release.

The short sale tick rule, adopted in 1938, had been suspended for a pilot test ordered in 2004, “created so that the Commission could study the effectiveness of short sale price tests.” The data from the pilot was analyzed and debated in a roundtable held by the Commission and the “general consensus from these analyses and the roundtable was that the Commission should remove price test restrictions because they modestly reduce liquidity and do not appear necessary to prevent manipulation.”