US SEC's Atkins: short-sale rule working smoothly

By Karey Wutkowski

WASHINGTON, July 22 (Reuters) - An emergency rule to curb abusive short selling has been operating smoothly since it went into effect on Monday, a member of the U.S. Securities and Exchange Commission said on Tuesday.

"I've heard no operational difficulties. It sounds like the stock exchanges have been able to implement it," SEC Commissioner Paul Atkins told reporters after a U.S. Chamber of Commerce event. "It has been a seamless type of thing."

But Atkins, who leaves the agency Aug. 1, said he was concerns about the possible consequences of expanding the rule beyond the securities of 19 major financial firms to the broader market.

He said the securities currently covered by the emergency order are very liquid, with large public floats, but smaller companies could be unduly impacted.

"When you get down to other companies that don't have (that liquidity), what sort of market effects might come about when you have a borrow or arrange-to-borrow requirement, that's going to be part of the discussion," said Atkins, a Republican.

He also called the emergency rule "a pilot" that could pave the way for SEC's more permanent rulemaking on short selling.

Under the SEC's emergency rule, brokers and dealers are now required to borrow stock before executing a short sale in 17 major Wall Street firms and mortgage finance giants Freddie Mac (FRE.N: Quote, Profile, Research) and Fannie Mae (FNM.N: Quote, Profile, Research).

The rule, which can last up to 30 days, also requires investors to deliver securities on the settlement date.