April 29, 2009
The proposed rule changes recognize that short selling contributes to efficient price discovery in financial markets, but that short selling can be misused for price manipulation ("bear raids").
Has the SEC considered imposing a limit on the amount of stock which a market participant may short in a single trading session? This could meet the purpose of preventing "bear raids" - which require a large quantity of stock to be shorted in one session.
A regulation implementing this suggestion would (1) impose either a dollar limit, or a volume limit based on average daily volume of the security being shorted (2) require every short seller to certify, as part of his order, that he has not submitted additional orders through other brokers that would cause the limit to be exceeded.
Enforcement would have to be after the fact. If a security declines sharply as a result of short selling, there would then be an investigation into whether the rules were breached. Substantial fines would deter sellers from violating the rules.