UPDATE 1-Nasdaq CEO backs circuit breakers to combat shorts

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NEW YORK Oct 2 (Reuters) - The head of Nasdaq OMX Group Inc (NDAQ.O) said on Thursday the extension of the U.S. short- selling ban should be the last extension and recommended using so-called circuit breakers instead because they are more pragmatic in such "extreme times."

Robert Greifeld said circuit breakers -- which could be used to halt shorts after certain stocks drop by a specified amount -- are preferable to a reinstatement of the uptick rule, which regulators eliminated last year.

"The circuit breaker would only apply ... during extreme times, when we need it," he said on a conference call, adding it is not a "blunt instrument" like the uptick rule.

"The uptick rule ... would be in the marketplace all day every day having a negative effect on the fairness and efficiency of the marketplace," Greifeld told issuers and media on the call.

He said the U.S. Securities and Exchange Commission is considering Nasdaq's recommendation.

On Wednesday, the CEO of rival exchange operator NYSE Euronext (NYX.N), Duncan Niederauer, backed the uptick rule, which for decades forced short sellers to sell at a price higher than the previous trade.

Later on Wednesday, the SEC extended its emergency ban on short selling nearly 1,000 financial stocks. See: [nL2367747]

The much-anticipated extension should be the last, Greifeld said, pointing to less liquidity, higher transaction costs and a wide discrepancy between closing prices and the next day's opening prices in short-banned stocks.

Short selling is a trading strategy in which borrowed stock is sold in the hope of buying it back at a lower price and returning it to the lender.

Greifeld said short selling is an "integral" part of the market, but "naked" short selling -- the illegal practice where the seller does not actually borrow the shorted stock -- is "improper."

The SEC is said to be considering both the uptick rule and circuit breakers, among other tools, as it attempts to protect financial stocks it says have been targeted by short sellers as the credit crisis deepens. (Reporting by Jonathan Spicer; Editing by Andre Grenon)