Short Sale Rule Extended to February
The implementation of the new short sale rule, originally scheduled to begin next week, has been pushed back by the US Securities and Exchange Commission until February 2011.
In a press release issued late Thursday, the SEC announced it granted the extension to allow certain exchanges ample time to make adjustments to opening and closing procedures for securities covered under the rule and to give market participants additional time to alter computer programs for the change.
With the new restriction in place, if a stock falls 10 percent or more in any given day, the stock will only be allowed to be sold through a short sale on that day and the day after if the price of the sale is higher than the highest bid nationally. Short selling involves borrowing shares and selling them with the hope of later repurchasing the stock at a lower price to make a profit.
The new restrictions were originally proposed back in February, as many analysts blamed the process on the 2008 market crash, though others have argued that there is not sufficient proof to blame the crash on short sales. The restrictions were supposed to take effect on November 10th. Investment firms have been working to alter the code of their computer trading systems, but many have complained about a lack of guidance from the SEC.
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