SEC offers short sale curbs, traders irked

By Rachelle Younglai and Karey Wutkowski

WASHINGTON (Reuters) - U.S. securities regulators floated five new proposals to curb short selling, drawing fire from short sellers who feel they are being made scapegoats for the financial crisis and stock market plunge.

The five-member Securities and Exchange Commission voted unanimously on Wednesday to seek 60 days of comment on the proposals, including bringing back an "uptick rule" -- allowing bets that a stock will fall only when the last sale price was higher than the previous price.

Another proposal would allow shorting only if the best available bid on a stock was higher than the last bid. Three other proposed restrictions would be triggered by a steep slide in the price of a security.

The SEC could combine some of the proposals but not all five could work together. Commissioners would have to meet again to decide on any final rule.

Traders and asset managers said short sellers were being targeted unfairly for the plunge in stock prices that occurred as the housing market bubble burst and exposed risky bets by financial institutions.

"The problem is that the managements of the banks and brokers screwed themselves up, short sellers did not," said hedge fund manager Doug Kass, who heads Seabreeze Partners Management.

Commissioners such as Kathleen Casey were generally skeptical of linking the 2007 abolition of the uptick rule to the last 18 months of stock market declines.

But SEC Chairman Mary Shapiro acknowledged the intense pressure on the agency to address short selling, telling Wednesday's meeting that no other issue had generated as many emails and comments since she took the position in January.