Uptick Rule on Shorting Stocks Expected to Be Restored

The so-called uptick rule, which limits short-selling in stocks, could be restored soon, Rep. Barney Frank of the House Financial Services Committee said.

"I've spoken to Chair (Mary) Schapiro of the SEC. I am hopeful the uptick rule will be restored within a month," Frank told reporters.

AP Barney Frank

His comments accelerated a rally in stocks, which were already gaining on Citigroup's comments that it was now profitable.

Frank was joined in his call by Senator Christopher Dodd who said on Tuesday that he favors reimposition by the U.S. Securities and Exchange Commission of the short-selling uptick rule.

"I wish they'd do it quickly," the Connecticut Democrat, who chairs the Senate Banking Committee, told reporters after a hearing on financial regulation reform.

The uptick rule allows short sales only when the last sale price was higher than the previous price.

The rule was first adopted in 1934, five years after the 1929 stock market crash, to prevent short sellers from adding to the downward pressure on a stock that is already falling sharply.

The rule was repealed in June 2007.

"Mary is moving towards the uptick rule, which some people think is very important, some people think it's not important, nobody thinks it does any harm," said Frank who is Chairman of the House Financial Services Committee. "I think that will go back (into effect)."

The SEC has so far declined any official comment on Frank's statements.

The uptick rule is different from the ban on "naked" short selling that was imposed temporarily last summer to prevent the downward spiral in financial stocks. The ban, which was lifted last fall, required investors to actually borrow shares of a stock they were shorting. This prevented "naked" selling, in which investors could put unlimited selling pressure on a stock.

At her confirmation hearing in January, Schapiro told lawmakers the agency would look at the entire area of short- selling and whether to reinstitute the uptick rule.

Several members of Congress have called for a return of the uptick rule. On January 9th, U.S. Rep. Gary Ackerman (D-NY), a Senior Member of the House Financial Services Committee, reintroduced legislation that would reinstate the rule.

Frank also said Tuesday that mark-to-market accounting rule must be improved and made more flexible.

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