SEC short-sale quell might request to marketplace makers: sources

WASHINGTON Tue Feb 23, 2010 11:23pm EST Related News SEC short sale curb may apply to market makers -sourcesTue, Feb 23 2010SEC to consider new short sale curbs next weekFri, Feb 19 2010US SEC to consider new short sale curbs next weekFri, Feb 19 2010SEC to mull short-sale curbs in coming weeksFri, Feb 5 2010UPDATE 3-US SEC to mull short-sale curbs in coming weeksFri, Feb 5 2010

WASHINGTON (Reuters) - Securities regulators are considering new short-sale restrictions with no exemptions for market makers, people familiar with the regulators" plans said on Tuesday.

The Securities and Exchange Commission is due to meet on Wednesday to vote on rules that would restrict short-selling in a company"s stock if that stock fell by more than a certain percentage, such as 10 percent, the sources said.

The SEC is considering allowing legitimate hedging during the short-sale curb but no general exemption for market makers, the sources said.

The SEC was not immediately available for comment.

Short-sellers bet on a stock"s decline. In a short-sale, an investor borrows stock and sells it in the hope that its price will drop. When it does, the seller profits by buying back the stock at the lower price and returning the borrowed shares.

During the financial crisis, lawmakers and corporate executives had urged the SEC to reinstate a Depression-era rule known as the "uptick rule" to help slow the downward pressure on stocks.

Now the SEC is expected to consider a "circuit breaker" measure that would trigger a version of the uptick rule, the sources said.

The rule would only allow short-selling above the national best bid for the stock and would last for the day that the stock dropped and the day after, the sources said.

The sources requested anonymity because the SEC rule is still in flux and could change before Wednesday"s meeting.

(Reporting by Rachelle Younglai; Editing by Muralikumar Anantharaman)