ETF News

UPDATE 3-US SEC to mull short-sale curbs in coming weeks

* SEC to consider consolidated stock audit trail

* SEC to weigh short sale rules in first quarter (Adds Aguilar comments)

WASHINGTON, Feb 5 (Reuters) - U.S. securities regulators will consider short-selling curbs in coming weeks as well as ways to improve market surveillance, Securities and Exchange Commission Chairman Mary Schapiro said on Friday.

The SEC proposed a number of ways to curb short-selling, a legitimate form of investing that amounts to a bet that a stock will fall. It was blamed for contributing to the downfall of Bear Stearns and Lehman Brothers.

Those proposals include market-wide curbs and so-called circuit breakers that would restrict short-selling if a stock fell precipitously.

Schapiro would not elaborate on what rule the SEC would consider adopting, but some have speculated that the SEC favors the circuit breaker approach.

During the financial crisis in 2008, lawmakers placed enormous pressure on the agency to stop investors from shorting stocks. The SEC has since adopted rules aimed at stamping out abusive forms of short-selling, but the agency’s five commissioners are at odds on whether additional limits are needed.

Schapiro said she hopes to consider new rules in the first quarter.


Schapiro also said the SEC would consider proposals to improve market surveillance, which is currently shared by in-house teams at trading venues like the New York Stock Exchange and by the Financial Industry Regulatory Authority, an industry-backed broker-dealer watchdog.

Specifically, the SEC is looking to consolidate the exchanges’ systems or “audit trails” that track stock order information. That would give market regulators the ability to see the entire marketplace instead of pieces of the market.

“It is difficult to connect the dots and ferret out wrongdoing as trading activity frequently occurs across various markets and each market is only able to readily see trading activity conducted in their own market,” Schapiro said at a Practising Law Institute conference in Washington.

Fellow SEC Commissioner Luis Aguilar agreed that a uniform audit trail is needed to help improve regulators’ ability to detect and investigate market-wide transactions.

Aguilar said relying on various tracking systems is clearly an outdated and patchwork approach. (Editing by Gerald E. McCormick and Steve Orlofsky)