American Security Resources Corp. (ARSC)

[HunterSwift]

The new short rules
http://blogs.wsj.com/marketbeat/2010...les-explained/

Q: What’s new about what the SEC approved Wednesday?


A: There are a couple new elements to the rules. One element is essentially an updated version of the uptick rule. The second is a new “circuit breaker” component.


Q: Whoa, I’m already lost. What’s the uptick rule, again?


A: This was a rule — created during the Great Depression — that said traders could only sell a stock short after it rises, i.e. an uptick. The rule was abolished in July 2007. But as the markets tumbled in 2008, there was a general clamor to bring back the uptick rule. The SEC wrote up some proposed rules, asked for comments about it and after reviewing them voted on the new rules today.


Q: Ok, so what’s different about the new uptick rule versus the old uptick rule.


A: Under the old rule, you could short sell at a price above the last trade price, or after the last price was higher than the previous price. Under the new rule, you wouldn’t be able short unless someone was willing to buy it for more than the national best bid. (That is, for a higher price than anyone is currently offering to pay.)


Q: It seems like it’d be hard to find someone willing to pay more for a stock than they have to.


A: It probably would be. That’s the idea. This is supposed to be a curb on shorting.


Q: What’s the advantage of using the best bid versus the last uptick?


A: The SEC says “among other reasons, we believe that bids generally are a more accurate reflection of current prices for a security than last sale prices due to delays that can occur in the reporting of last sale price information and the manner in which last sale price information is published to the markets.”


Q: Ok, got it. Can’t short unless you can get someone to pay more than the current best bid for the stock.


A: That’s only part of it. The second part is “circuit breaker” element.


Q: Oh yeah. What’s that?


A: That part of the rule says that the shorting curbs come in when a stock’s price falls 10% from the previous day’s close.


Q: For how long?


A: For the entire day in which the shares fell below 10 percent and for the following day.


Q: How many stocks is this going to effect?


A: The rule will apply to stocks that are listed on exchanges and traded over the counter. The SEC estimates that about 1.3% of stocks would hit that 10% barrier on any given day, according to Dow Jones. Of course that would likely go up during times of major market stress and volatility, such as the kind we’ve seen over the last couple years.


Q: Wow. It’s certainly refreshing to have such a concise and pithy explanation of such as dry topic. A tip of the cap to you, good sir.


A: No worries, we aim to please.