On February 24, 2010, the Securities and Exchange Commission (SEC) amended Rule 201 of Regulation SHO to impose price restrictions on the short selling of stocks that experience a significant price decline. Under the amended rule, after the price of a stock declines by 10% from the previous day’s closing price, short sales of such stock may only be effected at a price that is above the current national best bid (CNBB). Thus, after this price decline occurs, short sellers may be providers of liquidity but cannot be takers of liquidity.
Amended Rule 201 includes the following elements:
The amended rule does not provide an exemption for market makers. However, the SEC will request a study of the effect of the amended rule on options market makers.
A more detailed analysis of the rule will follow after the release becomes available.