Short sellers are the ultimate party poopers, frequently blamed by the public and the media when a financial crisis occurs.1 A short sale is the sale of any security the seller does not own or any sale consummated by the delivery of a borrowed security. A former rule of the Securities and Exchange Commission (SEC), known as the “uptick” rule, prohibited any person from effecting a short sale of any exchange listed security below the price at which the last sale of that security was reported.2
This rule was designed to mitigate downdrafts of securities prices. It was rescinded in the summer of 2007, after extensive studies by the SEC, based on the belief that with decimal pricing and the transparency and surveillance in exchange markets the rule had become unnecessary.3 Further, the widespread availability of options and derivatives had made the rule of questionable utility since it could be so easily evaded in the futures markets.
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