The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Sun, 30 Aug 2026 11:30:59 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.10 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png The SEC’s New Short Sale Rule: Implications and Ambiguities – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 The SEC’s New Short Sale Rule: Implications and Ambiguities https://corpgov.law.harvard.edu/2010/03/14/the-secs-new-short-sale-rule-implications-and-ambiguities/?utm_source=rss&utm_medium=rss&utm_campaign=the-secs-new-short-sale-rule-implications-and-ambiguities https://corpgov.law.harvard.edu/2010/03/14/the-secs-new-short-sale-rule-implications-and-ambiguities/#comments Sun, 14 Mar 2010 15:25:08 +0000 http://blogs.law.harvard.edu/corpgov/?p=7937?d=20150120103158EST Posted by Annette L. Nazareth, Davis Polk & Wardwell LLP, on Sunday, March 14, 2010
Editor's Note:

Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP. This post is based on a Davis Polk client memorandum.

After months of deliberation and consideration of several alternatives, the Securities and Exchange Commission (the “SEC” or “Commission”) announced on February 24, 2010 the adoption of a new short sale rule — Rule 201 of Regulation SHO (the “Rule” or “Rule 201”). The Rule institutes what the marketplace has termed a “circuit breaker with a passive upbid requirement” rather than a full-time restriction on short sales. The restriction goes into place upon a 10% decline in the price of an NMS stock from its previous day’s closing price. Rule 201 effectively restricts the display or execution by exchanges and other trading centers of a short sale order in such stock to a price above the national best bid for the remainder of the trading day and the next trading day (the “Price Restriction”). The Rule will be implemented through policies and procedures of trading centers and broker-dealers that are not, themselves, trading centers.

There are limited exceptions from the basic requirement, including for arbitrage and odd lot transactions, but far fewer exceptions than market participants had advocated. Notably, there is no exception for market making in NMS stocks or options market making.

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