Eyes on the Go, Inc. (AXCG)

[Newguy417]

WASHINGTON -- The U.S. Securities and Exchange Commission is set to vote Wednesday on a final rule that will curb short selling for individual securities that experience declines of at least 10% in a single day.

The vote will bring an end to almost a year of debate over the practice, in which investors attempt to profit by selling borrowed shares of a stock that is losing value. For falling stocks, the rule will allow short selling only if the price of the security is above the current national best bid.

The price test would be triggered for a security any day in which its price declines by 10% or more from the prior day's closing price, according to an SEC summary of the proposal. The restriction would apply to short sale orders in that security for the remainder of the day as well as the following day.

Short-selling has come under fire from lawmakers and other policy makers in the wake of recent economic turmoil, although its defenders say they are the victims of political rhetoric.

The SEC asked for comments on whether it should reinstate a short-selling restriction known as the "uptick" rule, in which investors can only short a stock after it rises, or ticks higher. Regulators and industry insiders agree that the previous uptick rule isn't workable with current lightening-fast computer-generated trades.

From the SEC's perspective, new rules that curb short selling in a manner that keeps investors from abusively driving down stock values will help investor confidence.

"In arriving at the rule we are considering, the commission was cognizant of the benefits that short selling can provide to the markets," said SEC Chairman Mary Schapiro.

"However, we also are concerned that excessive downward price pressure on individual securities, accompanied by the fear of unconstrained short selling, can destabilize our markets and undermine investor confidence in our markets," Ms. Schapiro said.

The industry won't be pleased with new rules. Goldman Sachs & Co.'s head of U.S. Equity Trading Paul Russo said in a letter to the SEC that a short sale price test "will harm market efficiency and liquidity and will not be effective in further safeguarding the market against abusive short sellng."

A spokesman for the Coalition of Private Investment Companies, a group of private investment companies, said the SEC's action will "likely harm investors' interests by raising transaction costs, reducing market quality, and undermining confidence in the markets' ability to determine prices fairly and efficiently."

The rule generally would apply to all equity securities that are listed on a national securities exchange, whether traded on an exchange or in the over-the-counter market.