April 14, 2009
I suggest we implement only second approach (the circuit breaker one).
In the cricuit breaker approach, I propose that during the severe price decline (i.e. while circuit breaker conition is true), disallow all shorting. If this (totally disallwing) is not an option, use National Best Bid going up as only permissible condition for shorting also once permitted (due to NBB going up), it should remain enabled till NBB ticks down.
Why "no" to the first approach:
Short sell and long buy make for symmetric market making. They enable a good mathematical model, something that would be helpful to make the vision of a true and transparent National (and in due course International) securities market that is accessible to everyone. Placing a short sell rule in normal market condition distorts the market and as commission notes, it has not helped in the markets where the rule was in force.
Why "no" to short sell during Circuit Break Condition:
This is just to keep it simple. Today we have "Halt" and "Quote" condition. Adding a "BuyOnly" or "SellOnly" condition will be a natural addition to prevailing "exception" handling methods.