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SEC to consider uptick rule return

WASHINGTON (AP) — The Securities and Exchange Commission is carefully weighing options for reining in rushes of short-selling that can sink stock prices and will work seriously on a plan to give shareholders access to annual corporate ballots for directors, the agency's chief said yesterday.

SEC chairman Mary Schapiro and the other four SEC commissioners are scheduled to vote tomorrow on new short-selling rules — a change being pushed by investors and lawmakers — and are expected to put forward several separate proposals for public comment.

"We will be very deliberative in our effort to determine what is in the best interest of investors," Schapiro said in an address to a conference of the Council of Institutional Investors, a group representing public, corporate and union pension funds that together have an estimated $3 trillion in assets.

The SEC will open for comment a proposal to reinstate the so-called uptick rule or take other measures designed to stem market dislocation caused by excesses of short selling, which involves betting against a stock.

The uptick rule, which the SEC abolished in 2007, requires short sellers to wait to sell until a stock trades at a price at least slightly above its previous trading price. The idea is to install "a bit of a speed bump in a declining market," Schapiro told reporters after her speech. Whatever changes are adopted won't stifle short-selling in a blanket way, she said, adding that the SEC could put forward "about four" possible options tomorrow.

One option being considered, in addition to reinstating the uptick rule, is a sort of "circuit breaker" for stock prices as proposed recently by the chief executives of four US stock exchanges, Schapiro said. That approach would force short sellers to sell shares above the going market rate when they execute a short trade — it would only go into effect after a stock price has had a sharp decline by a certain amount, possibly 10 percent.

Short-selling is legal and widely used on Wall Street. The practice involves borrowing a company's shares, selling them, and then buying them when the stock falls and returning them to the lender. The short-seller pockets the difference in price.

In her remarks to the investors' group, Schapiro also said the SEC will consider next month a proposal to ensure shareholders a "meaningful opportunity" to nominate directors for ballots of public companies. "We're viewing these issues with fresh eyes," she said.

A challenge would be to craft new rules for election of directors that don't allow company attorneys to game the system in a way that thwarts shareholders' legitimate desires, Schapiro said.

Investors and governance advocates have bitterly protested the SEC's action in late 2007, on a 3-1 vote, allowing companies to deny dissident shareholders access to annual proxy ballots, making it more difficult and expensive for dissident blocs to elect their candidates to a company's board. The proposal rejected by the SEC would have allowed shareholders who together owned at least five percent of a company's stock to propose changes to the company's bylaws on elections for directors.

The controversial shareholder rights issue had split the commissioners along party lines, with the lone Democrat at the time dissenting in the 2007 vote.

Now with a new chairman heading the SEC, named by a Democratic president, and a Democratic majority among the five commissioners, the investor groups are buoyed by prospects for a change they say could make corporate America more responsive to shareholders.