Uptick rule eyed, Fed chief backs accounting tweak

By Rachelle Younglai and Jeremy Pelofsky

WASHINGTON (Reuters) - U.S. Regulators will consider reviving the "uptick" restriction on short-sellers of stocks and a top monetary official lent his support on Tuesday to modifying an accounting rule that has forced banks to take billions of dollars in writedowns.

Federal Reserve Chairman Ben Bernanke said he was opposed to suspending mark-to-market accounting but said the rule tended to reinforce economic trends and improvements could be made.

The prospect of the changes helped U.S. stocks to their best day in four months, cheered by Citigroup saying it was profitable in the first two months of 2009.

Barney Frank, who chairs the U.S. House of Representatives Financial Services Committee, told reporters he had spoken to the head of the Securities and Exchange Commission and hoped the uptick rule would soon be reinstated.

"I've spoken to Chair Schapiro of the SEC. I am hopeful the uptick rule will be restored within a month," Frank said.

The SEC later confirmed it may meet next month on the uptick issue but any proposal would likely be subject to a public comment period with a final rule possibly months away.

"The Commission may conduct a public meeting as early as next month to consider whether to formally propose reinstatement of the uptick rule, or consider other measures related to short sales," said SEC spokesman John Nester.

The uptick rule, adopted after the 1929 stock market crash, allowed short sales only when the last sale price was higher than the previous price. The SEC abolished the rule in 2007, after concluding that advances in trading strategies rendered it ineffective.

Senate Banking Committee Chairman Christopher Dodd said he backed the SEC reinstating the uptick rule "I wish they'd do it quickly," the Connecticut Democrat told reporters.

Short-selling is often blamed for precipitous declines in stocks but short-sellers defend their role, saying they prevent shares from becoming overvalued.

The SEC adopted short-term restrictions on short-selling last year but the measures were judged by some market watchers to have been largely ineffective.

Short-sellers borrow stocks they expect will fall in price in the hope of repaying the loans for less and pocketing the difference.

MORE ACCOUNTING GUIDANCE

Frank welcomed Bernanke's support for changes to the mark-to-market accounting rule. "I do think you're going to see major movement on mark-to-market. Bernanke kind of blessed that...," he said.

Bernanke stressed that he supported mark-to-market's goal of making financial balance sheets as transparent as possible, but also talked about its shortcomings.