SEC Proposes Rules to Relax Short-Sale Limits

The Securities and Exchange Commission on Wednesday proposed rules to loosen some restrictions on short selling, the first time in 27 years that the agency has considered changing rules on trading practices that make money when stocks fall.

Under the proposal, the SEC would conduct a two-year experiment for about 300 widely traded companies, eliminating rules that bar short selling when a stock’s price is falling. The SEC plan also would establish a uniform rule on when investors can engage in short selling.

In a short sale, an investor borrows shares and then sells them, betting the borrowed stock can be repaid later with shares bought at a lower price.

Though many public companies oppose short selling because it can drive down the price of shares, SEC officials said changes in today’s markets make some restrictions less necessary. It’s now harder to manipulate markets through short selling because investors have easier access to trading information and regulators are better equipped to monitor the millions of shares that change hands each day, SEC officials said.

The five-member SEC voted unanimously to propose the plan, called Regulation SHO. The short-selling proposal now will undergo 60 days of public comment before the SEC will vote again on final rules.