SEC May Bring Back Price Tests
Traders Magazine, September, 2008 by Peter Chapman
Five years ago, when the Securities and Exchange Commission was crafting Regulation SHO and pondering the fate of the industry's price-test rules, it initially decided to replace the rules with a uniform bid test.
Traders who wanted to sell short would be able to do so only if the sale price was at least 1 cent above the consolidated best bid.
In the end, however, after much study and debate, the SEC decided price tests were ineffective and unnecessary. In July 2007, it eliminated the existing rules, but chose not to introduce any new ones.
The regulator reasoned that the transparency of the marketplace and the robustness of regulatory surveillance were enough to deter and/or catch those short sellers illegally abusing the trading tactic.
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