[Federal Register Volume 74, Number 160 (Thursday, August 20, 2009)]
[Proposed Rules]
[Pages 42033-42037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-19989]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 74, No. 160 / Thursday, August 20, 2009 / 
Proposed Rules

[[Page 42033]]



SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

[Release No. 34-60509; File No. S7-08-09]
RIN 3235-AK35


Amendments to Regulation SHO

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule; notice of re-opening of comment period and 
supplemental request for comment.

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SUMMARY: The Securities and Exchange Commission is re-opening the 
comment period to the ``Amendments to Regulation SHO'' it proposed in 
Securities Exchange Act Release No. 59748 (Apr. 10, 2009), 74 FR 18042 
(Apr. 20, 2009) (the ``Proposal''). As a supplement to our request for 
comment on the Proposal, we are soliciting additional feedback 
regarding an alternative price test, on which we solicited comment in 
the Proposal, that would allow short selling only at a price above the 
current national best bid (the ``alternative uptick rule''). We are 
publishing this supplemental request for comment and reopening the 
comment period to help ensure that the public has a full opportunity to 
provide comments on the alternative uptick rule.

DATES: Comments should be received on or before September 21, 2009.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#7200071e175f111d1f1f171c0601320117115c151d04"><span class="__cf_email__" data-cfemail="2a585f464f07494547474f445e596a594f49044d455c">[email protected]</span></a>. Please include 
File Number S7-08-09 on the subject line; or
    <bullet> Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-08-09. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. We will post all comments on the Commission's Internet Web site 
(http://www.sec.gov/rules/proposed.shtml). Comments are also available 
for public inspection and copying in the Commission's Public Reference 
Room, 100 F Street, NE., Washington, DC 20549 on official business days 
between the hours of 10 a.m. and 3 p.m. All comments received will be 
posted without change; we do not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly.

FOR FURTHER INFORMATION CONTACT: Jo Anne Swindler, Acting Associate 
Director; Josephine J. Tao, Assistant Director; Victoria Crane, Branch 
Chief; or Katrina Wilson, Staff Attorney, Division of Trading and 
Markets, at (202) 551-5720, at the Commission, 100 F Street, NE., 
Washington, DC 20549-6628.

SUPPLEMENTARY INFORMATION: On April 8, 2009, we proposed to re-examine 
and seek comment on whether to impose price test restrictions or 
circuit breaker restrictions on short selling.\1\ The Proposal was 
published for comment on April 20, 2009 and the comment period 
initially closed on June 19, 2009.\2\
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    \1\ See Proposal, 74 FR 18042.
    \2\ See id.
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I. Introduction

    In the Proposal, we proposed two approaches to restrictions on 
short selling: one that would apply on a market-wide and permanent 
basis (``short sale price test'' or ``short sale price test 
restriction'') and one that would apply only to a particular security 
during a severe market decline in the price of that security (``circuit 
breaker'').\3\ With respect to the first approach, we proposed two 
alternative short sale price tests: one based on the current national 
best bid (the ``proposed modified uptick rule'') and the second based 
on the last sale price (the ``proposed uptick rule''). With respect to 
the second approach, we proposed two alternative circuit breaker tests: 
one that would temporarily prohibit short selling in a particular 
security when there is a severe decline in the price of that security; 
and one that would temporarily impose either the proposed modified 
uptick rule or the proposed uptick rule on short sales in a particular 
security when there is a severe decline in the price of that security. 
Although we sought comment on the alternative uptick rule, it was not 
one of the proposed approaches.
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    \3\ See id.
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    The Proposal sought comment on all aspects of the proposed 
approaches to restrictions on short selling. Among other things, the 
Proposal inquired whether the alternative uptick rule, which would 
permit short selling at a price above the current national best bid, 
would be preferable to the proposed modified uptick rule and the 
proposed uptick rule.\4\ We sought comment regarding the application of 
the alternative uptick rule as a market-wide permanent price test 
restriction or in conjunction with a circuit breaker.\5\ We have 
received almost 4,000 unique comment letters in response to the 
Proposal, as well as over 250 copies of 4 different standard letter 
types, and a petition with 5,605 signatures.\6\ We have received one 
comment letter that favored adoption of the alternative uptick rule on 
a market-wide permanent basis.\7\ Six commenters who stated that there 
is not any need for the Commission to enact any further restrictions on 
short selling expressed support for applying the alternative uptick 
rule in combination with a circuit breaker if some form of a price test 
were to be instituted.\8\ One

[[Page 42034]]

commenter who stated that a price test could contribute to the goal of 
restoring investor confidence expressed support for the alternative 
uptick rule, but expressed a preference for the proposed modified 
uptick rule.\9\ In addition, the Commission hosted a roundtable on May 
5, 2009 to examine short sale price test and circuit breaker 
restrictions, at which several panelists expressed support for the 
alternative uptick rule.\10\
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    \4\ See Proposal, 74 FR at 18072, 18081, 18082.
    \5\ See id.
    \6\ The full text of comments to the Proposal, including the 
text of standard letter types and a petition, is publicly available 
at: http://www.sec.gov/comments/s7-08-09/s70809.shtml.
    \7\ See letter from Glen Shipway, dated June 19, 2009.
    \8\ See letter from Erik Swanson, SVP and General Counsel, BATS 
Exchange, Inc., dated May 14, 2009 (``BATS''); letter from Johnny 
Peters, ChFC, dated May 20, 2009; letter from Dan Mathisson, 
Managing Director, Credit Suisse Securities (USA), LLC, dated June 
16, 2009 (``Credit Suisse''); letter from Ira D. Hammerman, Senior 
Managing Director and General Counsel, SIFMA, dated June 19, 2009 
(``SIFMA''); letter from Paul M. Russo, Managing Director, Head of 
U.S. Equity Trading, Goldman, Sachs & Co., dated June 19, 2009 
(``Goldman Sachs''); letter from Eric W. Hess, General Counsel, 
DirectEdge, dated June 23, 2009. In addition, we note that prior to 
the Commission issuing the Proposal, four exchanges, NYSE Euronext, 
The Nasdaq OMX Group, Inc., BATS Exchange, Inc., and National Stock 
Exchange (the ``national securities exchanges''), submitted a 
comment letter recommending a circuit breaker combined with a price 
test that would allow short selling only at an increment above the 
current national best bid, like the alternative uptick rule. NYSE 
Euronext, in its subsequent comments, stated that it supported the 
proposed modified uptick rule rather than the position expressed in 
the earlier March 24, 2009 letter. See statement of Larry Leibowitz, 
Group Executive Vice President and Head of Global Technology and US 
Execution, NYSE Euronext, dated May 5, 2009 (``statement of NYSE 
Euronext''); letter from Janet M. Kissane, Senior Vice President, 
Legal and Corporate Secretary, NYSE Euronext, dated June 19, 2009 
(``NYSE Euronext'').
    \9\ See statement of NYSE Euronext; letter from NYSE Euronext.
    \10\ See Unofficial Copy of Roundtable Transcript available at 
http://www.sec.gov/spotlight/shortsales.htm. (the following 
individuals commented on the alternative uptick rule during the 
roundtable: Richard Ketchum, Chairman and CEO, FINRA; Dan Mathisson, 
Managing Director, Credit Suisse Securities (USA) LLC; Lawrence 
Leibowitz, Group Executive Vice President, Head of US Markets and 
Global Technology, NYSE Euronext; and Dr. Frank Hatheway, Chief 
Economist, Nasdaq OMX Group).
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    We want to further consider the alternative uptick rule and whether 
adopting it would achieve our objectives. Accordingly, we are 
publishing this supplemental request for comment and reopening the 
comment period to help ensure that the public has a full opportunity to 
provide comments on the Proposal, the alternative uptick rule, and any 
other matters that may have an effect on the Proposal and to assist the 
Commission in its consideration of the same.

II. Discussion

A. The Alternative Uptick Rule

    As noted in the Proposal, the alternative uptick rule would allow 
short selling only at a price above the current national best bid such 
that short selling would occur only at a higher price than the current 
national best bid.\11\ The alternative uptick rule would be similar to 
the proposed modified uptick rule in that both would use the current 
national best bid as a reference point for short sale orders. Unlike 
the proposed modified uptick rule (and the proposed uptick rule), the 
alternative uptick rule would not allow short selling at the current 
national best bid (or last sale price). Instead, in an advancing or 
declining market, the alternative uptick rule would only permit short 
selling at an increment above the current national best bid, unless an 
applicable exception applies.\12\
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    \11\ See Proposal, 74 FR at 18072, 18081, 18082.
    \12\ See infra discussion in Section II.B., ``Exceptions.''
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    Because it would only permit short selling at an increment above 
the national best bid, the alternative uptick rule would not allow 
short sales to get immediate execution, even in an advancing market, 
and therefore the alternative uptick rule would restrict short selling 
to a greater extent than either the proposed modified uptick rule or 
the proposed uptick rule. We note, however, that because the 
alternative uptick rule would reference only the current national best 
bid in determining permissible short sales, it would not require 
monitoring of the sequence of bids or last sale prices (i.e., whether 
the current national best bid or last sale price is above or below the 
previous national best bid or last sale price). As a result, in the 
view of at least one commenter, the alternative uptick rule would 
likely be easier to monitor \13\ and, in the view of several 
commenters, could likely be implemented more quickly than the proposed 
modified uptick rule or the proposed uptick rule.\14\ For the same 
reason, at least two commenters stated that the alternative uptick rule 
could potentially be less costly to implement than the proposed 
modified uptick rule or the proposed uptick rule.\15\ In addition, 
several commenters noted that the alternative uptick rule would be 
easier to program into trading and surveillance systems than the 
proposed modified uptick rule or the proposed uptick rule because it 
would not require bid sequencing.\16\
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    \13\ See, e.g., letter from SIFMA.
    \14\ See, e.g., statement from NSYE Euronext; letter from Credit 
Suisse; letter from SIFMA; letter from Glen Shipway; letter from 
Goldman Sachs.
    \15\ See, e.g., letter from BATS; letter from Glen Shipway.
    \16\ See, e.g., letter from the national securities exchanges; 
letter from Glen Shipway; letter from Goldman Sachs.
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    However, because the alternative uptick rule would restrict short 
selling to a greater extent than either the proposed modified uptick 
rule or the proposed uptick rule, it could also potentially lessen some 
of the benefits of legitimate short selling, including market liquidity 
and pricing efficiency \17\ to a greater extent. Thus, there may be 
potential costs associated with the alternative uptick rule in terms of 
potential impact of such a price test on quote depths, spread widths, 
market liquidity, execution and pricing inefficiencies.
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    \17\ See, e.g., Securities Exchange Act Release No. 54891 (Dec. 
7, 2006), 71 FR 75068, 75069 (Dec. 13, 2006); Securities Exchange 
Act Release No. 48709 (Oct. 28, 2003), 68 FR 62972, 62974 (Nov. 6, 
2003); Securities Exchange Act Release No. 29278 (June 7, 1991), 56 
FR 27280 (June 13, 1991); Securities Exchange Act Release No. 50103 
(July 28, 2004), 69 FR 48009, n. 6 (Aug. 6, 2004); Boehmer, Ekkehart 
and Wu, Julie, Short Selling and the Informational Efficiency of 
Prices (Jan. 8, 2009).
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    In the Proposal, we proposed a policies and procedures approach 
with the proposed modified uptick rule, such that the rule would 
require trading centers\18\ to have policies and procedures reasonably 
designed to prevent the execution or display of short sales at 
impermissible prices.\19\ In contrast, we proposed a straight 
prohibition approach with the proposed uptick rule, such that the rule 
would prohibit any person from effecting short sales at impermissible 
prices.\20\ We also discussed in the Proposal that in adopting a final 
rule, we could take several different approaches, or a combination of 
approaches.\21\ Similarly, as discussed in the Proposal, the 
alternative uptick rule could ultimately be implemented through a 
policies and procedures approach or through a straight prohibition 
approach or some combination thereof.\22\
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    \18\ A ``trading center'' means a national securities exchange 
or national securities association that operates a self-regulatory 
organization trading facility, an alternative trading system, an 
exchange market maker, an over-the-counter market maker, or any 
other broker or dealer that executes orders internally by trading as 
principal or crossing orders as agent. See 17 CFR 242.600(b)(78); 
see also Proposal, 74 FR at 18043, 18051.
    \19\ See Proposal, 74 FR at 18051-18052.
    \20\ See Proposal, 74 FR at 18052, 18062.
    \21\ See Proposal, 74 FR at 18049.
    \22\ See Proposal, 74 FR at 18072. For instance, the approaches 
could be combined so that persons are prohibited from selling short 
at or below the current national best bid and trading centers are 
also required to have reasonable policies and procedures to prevent 
the execution or display of a short sale at or below the current 
national best bid.
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    In addition, as was noted in the Proposal, the alternative uptick 
rule could be implemented in combination with a short selling circuit 
breaker.\23\ Specifically, in the Proposal, we requested comment 
regarding whether a circuit breaker that would temporarily impose the 
alternative uptick rule on short sales in a particular security when 
there is a severe decline in the price of that security would be 
preferable to a circuit breaker that would impose either

[[Page 42035]]

the proposed modified uptick rule or the proposed uptick rule.\24\
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    \23\ See Proposal, 74 FR at 18081, 18082.
    \24\ See id.
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    Similar to a circuit breaker that would impose either the proposed 
modified uptick rule or the proposed uptick rule, as discussed in the 
Proposal, a circuit breaker that would impose the alternative uptick 
rule would be triggered by an intraday decline in the price of an 
individual equity security by a set percentage (for example 10, 15 or 
20 percent) from the prior day's closing price.\25\ A circuit breaker 
that would impose the alternative uptick rule would include the same 
exceptions as discussed with respect to the market-wide permanent 
alternative uptick rule.\26\ In addition, like the market-wide 
permanent alternative uptick rule, discussed above, a circuit breaker 
that would impose the alternative uptick rule would restrict short 
selling to a greater extent and would likely be easier to implement 
than a circuit breaker that would impose either the proposed modified 
uptick rule or the proposed uptick rule. However, a circuit breaker 
that would impose the alternative uptick rule would be less restrictive 
than a circuit breaker halt rule, which would temporarily prohibit 
short selling in a particular security if there is a severe decline in 
price in that security.\27\
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    \25\ See Proposal 74 FR at 18069.
    \26\ See infra discussion in Section II.B., ``Exceptions.''
    \27\ See Proposal, 74 FR at 18066.
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B. Exceptions

    In the Proposal, the proposed modified uptick rule and the proposed 
uptick rule included types of short sales that would not be subject to 
the requirements of the proposed rules.\28\ For example, the proposed 
modified uptick rule would require that a trading center's policies and 
procedures be reasonably designed to permit the execution or display of 
a short sale order marked ``short exempt'' without regard to whether 
the order would otherwise be impermissible.\29\ The proposed uptick 
rule included a number of exceptions to its price test restrictions on 
short sales that, for the most part, paralleled the provisions in the 
proposed modified uptick rule relating to short sale orders that could 
be marked ``short exempt.'' \30\
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    \28\ See Proposal, 74 FR at 18054-18059, 18062-18064.
    \29\ See Proposal, 74 FR at 18054-18059.
    \30\ See Proposal, 74 FR at 18062-18064.
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    We believe that, because the alternative uptick rule would be most 
similar to the proposed modified uptick rule, in that both approaches 
would use the current national best bid as their reference point, the 
rationale discussed in the Proposal for the ``short exempt'' marking 
provisions under the proposed modified uptick rule would be similarly 
applicable to the alternative uptick rule.\31\ Whether requiring a 
policies and procedures approach, or a prohibition approach, the 
alternative uptick rule could also include ``short exempt'' provisions 
or exceptions for: (i) A seller's delay in delivery as set forth in 
Section III.A.2.b of the Proposal; \32\ (ii) odd lots, as set forth in 
Section III.A.2.c. of the Proposal; \33\ (iii) domestic arbitrage, as 
set forth in Section III.A.2.d. of the Proposal; \34\ (iv) 
international arbitrage, as set forth in Section III.A.2.e. of the 
Proposal; \35\ (v) over-allotments and lay-off sales, as set forth in 
Section III.A.2.f. of the Proposal; \36\ (vi) transactions on a VWAP 
basis, as set forth in Section III.A.2.h. of the Proposal; \37\ and 
(vii) riskless principal transactions as set forth in Section 
III.A.2.g. of the Proposal.\38\ As we recognize that the alternative 
uptick rule would be more restrictive than the proposed modified uptick 
rule, we also renew our request for comment on the importance of a 
market maker exception. We ask for comment on the scope of any such 
exception and the conditions that should be imposed to ensure that it 
is used only for bona fide market making.
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    \31\ We have received comments noting that a more restrictive 
form of price test or circuit breaker would require additional 
exemptions. See e.g., Unofficial Copy of Roundtable Transcript, 
available at http://www.sec.gov/spotlight/shortsales.htm (statement 
by Lawrence Leibowitz, Group Executive Vice President, Head of US 
Markets and Global Technology, NYSE Euronext). See also letter from 
the Investment Company Institute, dated June 19, 2009.
    \32\ 74 FR at 18055.
    \33\ Id.
    \34\ 74 FR at 18056.
    \35\ Id.
    \36\ 74 FR at 18057.
    \37\ 74 FR at 18058.
    \38\ 74 FR at 18057. We note that the proposed uptick rule 
included exceptions that paralleled the ``short exempt'' marking 
provisions for the proposed modified uptick rule, as well as three 
exceptions specific to a price test based on last sale price. In 
addition, one exception (error in marking a short sale) was specific 
to a prohibition approach, rather than a policies and procedures 
approach, and would be applicable to the alternative uptick rule if 
it were adopted with a prohibition approach. See Proposal, 74 FR at 
18063.
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III. Request for Comment

A. General Request for Comment

    We renew our request for comment on all aspects of the alternative 
uptick rule. Commenters are requested to provide empirical data in 
support of any arguments and/or analyses. In addition to the questions 
posed above, commenters are welcome to offer their views on any other 
matter raised by the alternative uptick rule and the Proposal. With 
respect to any comments, we note that they are of the greatest 
assistance to our rulemaking initiative if accompanied by supporting 
data and analysis of the issues addressed in those comments and by 
alternatives to our proposals where appropriate. We note that while 
there were questions in the Proposal that were specific to the 
alternative uptick rule, the Proposal also included discussion and 
solicited comment throughout that may be relevant to consideration of 
the alternative uptick rule and we refer commenters to the Proposal.

B. Specific Comment Request

    We renew our request for comment in response to the following 
specific questions that were originally published in the Proposal.\39\ 
We request comment on the questions set forth under the ``Supplemental 
Comment Request'' below.
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    \39\ See Proposal, 74 FR at 18072, 18081.
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Renewal of Comment Request
    1. Would the alternative uptick rule be more effective at 
preventing short selling, including potentially manipulative or abusive 
short selling, from being used as a tool to drive down the market or 
from being used to accelerate a declining market than the approach set 
forth in the proposed modified uptick rule or proposed uptick rule? If 
so, how? If not, why not? \40\
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    \40\ See Proposal, 74 FR at 18072.
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    2. What effect would the alternative uptick rule have on the 
benefits of short selling, such as providing price efficiency and 
liquidity? \41\
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    \41\ See id.
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    3. Would the alternative uptick rule be easier to program into 
trading and surveillance systems than the approach in the proposed 
modified uptick rule or proposed uptick rule? If so, why? If not, why 
not? \42\
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    \42\ See id.
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    4. If adopted, should the alternative uptick rule be combined with 
a policies and procedures approach similar to that discussed under the 
proposed modified uptick rule or a prohibition approach similar to that 
discussed under the proposed uptick rule? What would be the advantages 
and disadvantages, including costs and benefits of each of these 
approaches as combined with the alternative uptick rule? \43\
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    \43\ See id.
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    5. If the Commission were to adopt a circuit breaker rule, should 
the circuit breaker, when triggered, result in the

[[Page 42036]]

alternative uptick rule? If so, why? If not, why not? \44\
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    \44\ See Proposal, 74 FR at 18081.
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Supplemental Comment Request
    1. How effective would the alternative uptick rule be at helping to 
prevent short selling, including potentially abusive or manipulative 
short selling, from being used as a tool for driving the market down or 
from being used to accelerate a declining market by exhausting all 
remaining bids at one price level? Please explain and provide empirical 
data in support of any arguments and/or analyses. Could the alternative 
uptick rule be modified to better meet these goals? If so, how? Please 
explain and provide empirical data in support of any arguments and/or 
analyses.
    2. How would the alternative uptick rule affect short selling in an 
advancing market? How would the alternative uptick rule affect short 
selling in a declining market? Please explain and provide empirical 
data in support of any arguments and/or analyses.
    3. To the extent that there are concerns regarding investor 
confidence based on the numerous requests for reinstatement of short 
sale price test restrictions, would adopting the alternative uptick 
rule help restore investor confidence? If so, why? If not, why not? 
Please explain and provide empirical data or other specific information 
in support of any arguments and/or analyses.
    4. In addition to investor confidence and market volatility, we 
have stated that we are concerned about potentially abusive short 
selling. Would the alternative uptick rule help address potentially 
abusive short selling? If so, how? If not, why not? Please explain and 
provide empirical data in support of any arguments and/or analyses.
    5. In the Proposal, we also noted that short selling may be used to 
illegally manipulate stock prices.\45\ What impact, if any, would the 
alternative uptick rule have on short selling used to illegally 
manipulate stock prices? Please explain and provide empirical data in 
support of any arguments and/or analyses.
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    \45\ See id.
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    6. What impact, if any, would the alternative uptick rule have on 
``bear raids''? Please explain and provide empirical data in support of 
any arguments and/or analyses.
    7. Would the alternative uptick rule be an appropriate short sale 
price test in the current decimals environment? Would the alternative 
uptick rule be more suitable than the proposed modified uptick rule or 
the proposed uptick rule in a decimals environment with multiple 
trading centers? Please explain and provide empirical data in support 
of any arguments and/or analyses.
    8. How would trading systems and strategies used in today's 
marketplace be affected by the alternative uptick rule? How might 
market participants alter their trading systems and strategies in 
response to the alternative uptick rule, if adopted?
    9. What impact, if any, would the trading requirements of 
Regulation NMS have on implementing the alternative uptick rule?
    10. The proposed modified uptick rule and the proposed uptick rule 
have as their reference point for a permissible short sale the current 
national best bid, and the last sale price, respectively, in relation 
to the last differently priced national best bid, and the last 
differently priced sale price, respectively. In contrast, the 
alternative uptick rule would have as its reference point the current 
national best bid. Accordingly, the sequence of bids would not play a 
role in determining when short sales are permissible. How would 
removing bid or sale price sequencing from the requirements of a short 
sale price test restriction, if adopted, affect implementation costs, 
ongoing costs, the effectiveness of the restriction in achieving the 
Commission's goals, market liquidity, pricing efficiency, and investor 
confidence?
    11. If we were to adopt the alternative uptick rule, would a two 
month implementation period following the effective date of the 
alternative uptick rule be appropriate? Would a shorter or longer 
implementation period be more appropriate for the alternative uptick 
rule? Please explain.
    12. Because the alternative uptick rule would not require 
monitoring of the sequence of bids or last sale prices (i.e., whether 
the current national best bid or last sale price is above or below the 
previous national best bid or last sale price), could this type of rule 
be implemented more quickly than the proposed modified uptick rule or 
the proposed uptick rule?
    13. What would be the impact of the alternative uptick rule on off-
exchange trading? Specifically, would there be any special concerns 
with respect to off-exchange trading in connection with the alternative 
uptick rule, such as systems and/or implementation issues, or 
additional or alternative provisions that should be considered?
    14. As discussed above, if adopted with a policies and procedures 
approach, similar to the proposed modified uptick rule, the following 
short sale orders could be marked as ``short exempt'' and could, 
therefore, be exempt from the requirements of the alternative uptick 
rule: (i) A seller's delay in delivery as set forth in Section 
III.A.2.b of the Proposal; \46\ (ii) odd lots, as set forth in Section 
III.A.2.c. of the Proposal; \47\ (iii) domestic arbitrage, as set forth 
in Section III.A.2.d. of the Proposal; \48\ (iv) international 
arbitrage, as set forth in Section III.A.2.e. of the Proposal; \49\ (v) 
over-allotments and lay-off sales, as set forth in Section III.A.2.f. 
of the Proposal; \50\ (vi) transactions on a VWAP basis, as set forth 
in Section III.A.2.h. of the Proposal; \51\ and (vii) riskless 
principal transactions as set forth in Section III.A.2.g. of the 
Proposal.\52\ In addition, if adopted with a prohibition approach, the 
exception specific to the proposed uptick rule for error in marking a 
short sale, as set forth in Section III.B.2.a. of the Proposal,\53\ 
would also apply to the alternative uptick rule. Are these ``short 
exempt'' provisions or exceptions necessary or appropriate? If so, why? 
If not, why not?
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    \46\ 74 FR at 18055.
    \47\ Id.
    \48\ 74 FR at 18056.
    \49\ Id.
    \50\ 74 FR at 18057.
    \51\ 74 FR at 18058.
    \52\ 74 FR at 18057.
    \53\ 74 FR at 18063.
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    15. Are there other ``short exempt'' provisions or exceptions that 
should apply to the alternative uptick rule? If so, please explain. 
Should a general market maker exception apply to the alternative uptick 
rule? Should an options market maker exception apply? What should be 
the scope of any such exceptions? Should additional conditions apply to 
a market maker exception under the alternative uptick rule to ensure 
that only bona fide market making is captured by the exception?
    16. The Proposal includes a discussion of estimated annual 
reporting and recordkeeping burdens with respect to provisions of the 
proposed rules that would require a new ``collection of information'' 
under the Paperwork Reduction Act of 1995.\54\ We invite comment on 
these estimates with respect to the alternative uptick rule.\55\
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    \54\ 44 U.S.C. 3501 et seq. See Proposal, 74 FR at 18084-18090.
    \55\ Persons submitting comments on the collection of 
information requirements should direct them to the Office of 
Management and Budget, Attention: Desk Officer for the Securities 
and Exchange Commission, Office of Information and Regulatory 
Affairs, Washington, DC 20503, and should also send a copy of their 
comments to Elizabeth M. Murphy, Secretary, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-1090, with 
reference to File No. S7-08-09. Requests for materials submitted to 
OMB by the Commission with regard to this collection of information 
should be in writing, with reference to File No. S7-08-09, and be 
submitted to the Securities and Exchange Commission, Office of 
Investor Education and Advocacy, 100 F Street, NE., Washington, DC 
20549-0213. As OMB is required to make a decision concerning the 
collections of information between 30 and 60 days after publication, 
a comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days of publication.

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[[Page 42037]]

    17. The Proposal includes a discussion of estimated costs and 
benefits of the proposed rules.\56\ We are sensitive to the costs and 
benefits of the alternative uptick rule, and encourage commenters to 
discuss any additional costs or benefits specific to the alternative 
uptick rule and/or beyond those discussed discussed in the Proposal, as 
well as any reduction in costs. What would be the costs and benefits of 
the alternative uptick rule versus the proposed modified uptick rule, 
the proposed uptick rule, the circuit breaker halt rule or a circuit 
breaker triggering either the proposed modified uptick rule or the 
proposed uptick rule? What would be the general costs and benefits of 
short sales being subject to the alternative uptick rule? Commenters 
should provide analysis and data to support their views of the costs 
and benefits associated with the alternative uptick rule.
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    \56\ See Proposal, 74 FR at 18090-18103.
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    18. The Proposal includes a discussion of whether the proposed 
rules would promote efficiency, competition, and capital formation.\57\ 
We request comment on whether the alternative uptick rule would likely 
promote efficiency, capital formation, and competition.
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    \57\ See Proposal, 74 FR at 18103-18104.
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    19. The Proposal includes an Initial Regulatory Flexibility 
Analysis (``IRFA''), in accordance with the provisions of the 
Regulatory Flexibility Act,\58\ regarding the proposed rules.\59\ We 
solicit written comments regarding our IRFA analysis. In particular, 
the Commission seeks comment on the number of small entities that would 
be affected by the alternative uptick rule. We request that commenters 
provide empirical data to quantify the number of small entities that 
could be affected by the proposed amendments. We request comment on 
whether the proposed amendments would have any effects that we have not 
discussed. We also request that commenters describe the nature of any 
impact on small entities and provide empirical data to support the 
extent of the impact.
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    \58\ 5 U.S.C. 603.
    \59\ See Proposal, 74 FR at 18105-18107.
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    20. A number of commenters stated that their first preference would 
be for the Commission not to adopt any of the short sale regulations 
set forth in the Proposal, and this option along with the alternative 
uptick rule and all other options discussed in the Proposal are under 
active consideration. We request comments on the position that the best 
result for investors and the markets would be for the Commission not to 
adopt any additional short selling regulations at this time. If the 
Commission determines that additional short selling regulations are 
necessary, what option, including the alternative uptick rule, would 
produce the best result for investors and the markets?

    Dated: August 17, 2009.

    By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-19989 Filed 8-19-09; 8:45 am]
BILLING CODE 8010-01-P


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