Kaufman, in First Bill, Looks to Reinstate Uptick Rule
On floor, again calls on SEC to return to rule that served market well for 70 years
March 16, 2009
WASHINGTON, DC – Continuing his efforts to restore confidence in America’s financial markets, U.S. Senator Ted Kaufman (D-DE) introduced bipartisan legislation today that will reinstate the “uptick rule,” which aided market stability for 70 years. Since the uptick rule’s repeal in July 2007, the abuse of naked short-selling – selling stock that the trader does not own – has added fuel to the fire of distressed stocks and markets.
“Abusive short selling is tantamount to fraud and market manipulation and must be stopped – now,” Sen. Kaufman said on the Senate floor this evening. “The uptick rule should have never been repealed. To permit people to sell shares they don’t have and won’t be able to deliver turns investment into pure speculation. The time has come for this practice to stop.”
On March 3, Senator Kaufman sent Securities and Exchange Commission Chair Mary Schapiro, asking the SEC to reinstate the uptick rule. The uptick rule requires that when the price of a stock is falling, short sellers must wait for an increase in price before continuing to sell shares short. Under current rules short sellers are allowed to sell stocks they haven’t actually borrowed in advance of their short sale. When settlement day arrives and the seller doesn’t have the necessary shares, this harms the market and market participants – particularly when failures to deliver persist for substantial periods, as statistics show they clearly have.
“This is bigger than just one rule, however influential that rule is,” Sen. Kaufman said. “Markets all over the world continue to tumble because average investors have lost confidence that the markets work for them. Piece by piece, we must restore that faith. One important step is instituting sensible regulations. In this case – enacting a proven, time-tested rule – it’s an easy call.”
Sen. Kaufman was joined by Sen. Johnny Isakson (R-GA) in introducing the legislation, which directs the SEC to write regulations within 60 days that accomplishes five things to end abusive short selling:
(1) reinstate the substance of the uptick rule that prohibited short sales that are not made on an increase in the price of the stock; this prevents short sellers from piling on a declining stock, driving prices down.
(2) require exchanges and other trading venues to execute the trades of long sellers ahead of short sellers, all other things being equal.
(3) with the concurrence of the Secretary of the Treasury and the Chairman of the Board of Governors of the Federal Reserve System, prohibit short sales of the securities of any financial institution unless that trade is affected at a price (in minimum lots specified by the Commission) at least 5¢ higher than the immediately preceding transaction in such securities. Our financial sector, and financial stocks, are in a fragile state – and our taxpayers now hold substantial shares of many institutions. If the Treasury and Fed believe they need additional protection in these times, this legislation permits it.
(4) prohibit any person from selling securities short unless that person has at the time of the short sale a demonstrable legally enforceable right to deliver the securities at the required delivery date. Under current law, many short sellers fail to deliver – we must tighten up the rules.
(5) require that all short sales settle on the same time frame employed for long sales of the same securities. There is no reason short sellers should have 13 days to deliver shares when long sellers have only three days.
kaufman.senate.gov |
