Academic

Today the SEC, through its commissioners, voted 3-2 to ban short selling for stocks that have decreased in price 10% or more in a single day.  (WSJ here; SEC release here.)  Coming after temporary short selling bans on stocks of financial institutions (and quasi-financial institutions) were put in effect in 2008 to attempt to stabilize the market, these rules are meant to . . . "help investor confidence."  Chairman Mary Schapiro noted that short selling has benefits to the market, such as providing liquidity, but "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."  So, it's really not short selling that destabilizes the markets, but price declines and the "fear of unconstrained short selling."

Technically, Rule 201 will ban short-selling if a "circuit breaker" is tripped by an individual stock decreasing by 10% in one day.  The ban would be for the remainder of the day and the next day.  Short-selling would be allowed if the price of the sale were above the quoted price for the stock.

I tend to agree with former law professor Commissioner Troy Parades, who remarked that the rule is "rooted in conjecture and too speculative."