The Securities and Exchange Commission would be required to reinstate the so-called uptick rule under legislation introduced in the Senate Monday.
Sens. Ted Kaufman, Delaware Democrat, and Johnny Isakson, Georgia Republican, co-sponsored the measure that would bring back the restriction on short-selling.
“Abusive short-selling is tantamount to fraud and market manipulation and must be stopped - now,” Mr. Kaufman said on the Senate floor Monday, according to a press release posted on his Web site. “The uptick rule should have never been repealed.”
“To permit people to sell shares they don’t have and won’t be able to deliver turns investment into pure speculation,” Mr. Kaufman said. “The time has come for this practice to stop.”
Lawmakers and companies including Charles Schwab Corp. pressed the SEC to bring back the uptick rule after the Standard & Poor’s 500 Index fell more than 50 percent since the rule was scrapped in July 2007.
In a short sale, traders borrow stock and sell it, hoping to profit by replacing the shares at a lower price. The uptick rule required traders to wait for a price increase in the stock they wanted to bet against and prevented so-called bear raids by which successive short sales drive prices down.
The SEC eliminated the almost 70-year-old provision after a study in 2007 determined it was no longer relevant in markets dominated by fast-paced electronic trading.