SEC Adoption of Alternative Uptick Rule

February 26, 2010

In April 2009, we reported that the U.S. Securities and Exchange Commission (the “SEC”) had issued proposed rules to amend Regulation SHO to restrict short selling activities based upon certain security market price trends.1 On February 24, 2010 the SEC announced2 that it adopted a new “alternative uptick rule,” to be codified as Rule 201 of Regulation SHO, that would be triggered if the market price of a stock3 drops more than 10% from the previous trading day’s closing price. If such a 10% drop occurs, then, for the remainder of that trading day and for the next trading day, new Rule 201 will permit short selling only if the price of the security is above the then-current national best bid price.

The SEC’s new Rule 201 will become effective 60 days after its final rule release is published in the Federal Register. According to the SEC press release concerning new Rule 201, market participants will have six months to comply with its requirements.

If you have any questions concerning these matters, please contact one of the attorneys listed below.

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See Seward & Kissel Memorandum Regarding The SEC’s Proposal To Reconstitute the “Uptick Rule” And Other Restrictions On Short Selling dated April 20, 2009.

2 See SEC Approves Short Selling Restrictions, SEC News Release 2010-26, February 24, 2010.

3 The SEC stated that the alternative uptick rule will apply to all equity securities that are listed on a national securities exchange, whether or not the trade is conducted on that exchange or in the over-the-counter market.