For several decades, most commentators' mantra on short selling has been promotion of informational efficiency, which translated into minimal regulation. Individual investors, the U.S. Securities & Exchange Commission ("SEC"), and other groups of observers believe that escalating amounts of short selling, including naked short selling, have been a substantial cause of market volatility, investors' wholesale retreat from the stock markets, and severely declining market indexes and share prices, particularly in financial stocks. This Article reviews recent SEC proposals and enactments, including restoration of an uptick or similar "sales price restriction" rule, or installation of circuit breakers adding restrictions on short selling of stock following a precipitous price decline in the stock, and enactment of formerly temporary regulations requiring market participants (broker-dealers mostly) to close fails to deliverrnafter three days rather than thirteen days. Open fails to deliver often are evidence of naked short selling and stock price manipulation, which the SEC has battled since adoption of Regulation SHO in 2004. The Article concludes that these are Main Street versus Wall Street issues. Damping down market volatility is more important to Main Street traders than is promotion of high degrees of informational efficiency, while for professional traders, hedge funds, and high volume short sellers, informational efficiency is more important. The SEC's objective is not to serve one goal rather than the other but to regulate so as to achieve a balance between the two policy objectives.
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