NEW YORK — Chief executives from four U.S. stock exchanges sent a joint letter Tuesday to the Securities and Exchange Commission seeking to have new rules instituted to restrict short selling. In a letter to SEC chairwoman Mary Schapiro, the heads of NYSE Euronext, Nasdaq OMX Group and two smaller exchanges proposed a rule that would curb “abusive” short selling, which “destroys the overall confidence in our capital markets.”
Short-sellers bet against a stock in an effort to profit if its price falls. The practice, which is legal, involves borrowing a company’s shares, selling them, and then buying them back later at a lower price and returning them to the lender. The short-seller pockets the difference.
The new rule would go beyond the previous “uptick” rule curbing short-selling, which had been in place since the 1930s until being rescinded in 2007 and was intended to slow a declining stock from going into a freefall.
The new proposal recommends the rule only go into effect after the price of a stock has experienced a sharp decline by a certain percentage, possibly 10 percent, according to the letter to the SEC.
In addition to the NYSE and Nasdaq, executives from two smaller exchanges, the BATS Exchange and the National Stock Exchange, also signed the letter. The Associated Press
