The new rule is less cumbersome than the old short sale rule that was in effect from 1938 until the SEC lifted it in 2007. In that rule, virtually all short sales had to be preceded by an uptick in a stock’s price. But it’s not as liberal as the free-wheeling period after that rule was erased, either. The SEC placed a temporary, emergency ban on short sales of stocks of financial firms during the most acute phase of the recent market crisis.
Recognizing that short sales can be beneficial as well as a negative factor in markets, new rule is designed to put the brakes on a stock that has fallen dramatically in a day. A “circuit breaker” would disallow short sales in stocks which have tumbled 10% or more from the prior close. The “circuit breaker” would require the “alternative uptick rule” to take effect, stopping short sales unless “the price of the security is above the current national best bid.”
The “alternative uptick rule” would remain in effect, after the “circuit breaker” has been tripped, for the rest of the day and the next day as well.