The Securities Industry and Financial Markets Association (SIFMA) has provided input to the Securities and Exchange Commission (SEC) on its request for comment on potential short sale price test restrictions.
“Tthe industry has provided the Commission with substantive and constructive input on the different concepts they outlined, said Ira Hammerman, SIFMA senior managing director and general counsel. “While we agree that protecting investors and markets is crucial, it’s also critical that any new price test ruleif the Commission should determine that one is necessarybe designed to suit today’s markets and not have unintended negative consequences for our markets or investors.
In April, the SEC proposed and requested feedback on five different price test restrictions for short selling and on certain related questions. The Commission cited recent market conditions and events as reasons to revisit “price test restrictions on short sales, which were eliminated in their entirety in 2007.
SIFMA pointed out in its comment letter that it does not believe that there is sufficient evidence that stable markets could be promoted or achieved in any measurable sense through a new short sale price test restriction.
It also proposed that: The reinstatement of any proposed price test restriction should come only after rigorous analysis, and be supported by economic data evidencing a clear market or investor benefit resulting from reinstatement.
Other major points from SIFMA were as follows:
The Commission also should consider the significant positive impacts that have already been achieved through other recent regulatory actions regarding short selling, including recent Rules 204T (addressing fails-to-deliver), 10b-21 (targeting fraud) and 10a-3T (requiring disclosure).
SIFMA firms oppose the return of the Commission’s former uptick rule based on the last sale, in that it would be very difficult to make such a price test function in a post-Regulation NMS regime with fragmented equities markets.
If the Commission should determine that a price test is necessary, then SIFMA firms believe that such a restriction should be narrowly tailored to meet its achieved goals, without also resulting in significant costs to member firms and investors and without sacrificing the essential benefits of short selling in the markets.
If the Commission should determine that a price test is necessary, then many SIFMA firms believe that it should be narrowly tailored toward certain stocks that have tripped a circuit breaker, which they believe may have the least negative impact on the markets although this option is not without its own drawbacks that should be carefully considered.
Once the circuit breaker is triggered, SIFMA firms have differing views as to whether it should lead to a trading halt or a modified bid test; each of which has its own advantages and disadvantages.
Additionally, the letter notes that regulatory regimes from different jurisdictions should work together in coordinating efficient markets, and that the Commission should consider these regulatory regimes and their approaches to regulating short selling before choosing a course of action.