I received this draft from the Security Traders Association.

Rule 80C: Temporary Ban on Short Sales Due to Extreme Price Decline
(a) If the closing price of a security declines 20% below its closing price of the prior trading session, beginning the next trading session, all members and member organizations are prohibited from short selling such a security ("Protected Security") for three trading days. Each day after the close of trading, the Exchange will publish a list of Protected Securities that will be subject to such a temporary ban for the next trading session ("Protected Security List").

(b) Section (a) of this Rule shall not apply to:
(1) Specialists, registered market makers, block positioners, or other market makers obligated to quote in the over-the-counter market, provided that any short sales in a Protected Security are part of bona fide market making in such security;

(2) A short sale in a Protected Security that results from the automatic exercise or assignment of an equity option, or in connection with the settlement of a futures contract, that is held prior to the Protected Security appearing on the Protected Security List;

(3) Registered market makers, including an over-the-counter market maker, that effects a short sale as part of a bona fide market making and hedging activity related directly to bona fide market making in (i)derivative securities based on a Protected Security, or (ii) exchange traded funds and exchange traded notes of which Protected Securities are a component. Provided, however, if a customer or counterparty position in a derivative security based on a Protected Security is established after the Protected Security appears on the Protected Security List, a market maker may not effect a short sale in the Protected Security if the market maker knows that the customer's or counterparty's transaction will result in the customer or counterparty establishing or increasing an economic net short position (i.e., through actual positions, derivatives, or otherwise), in the issued share capital of a security covered by this Rule;

(4) The writer of a call option that effects a short sale in any Protected Security as a result of assignment following exercise by the holder of the call;

(5) Persons that effect sales of Protected Securities pursuant to Rule 144 of the Securities Act of 1933;
(6) A short position in a Protected Security that is the subject of offsetting positions created in the course of bona fide arbitrage, risk arbitrage, or bona fide hedge activities; or

(6) Floor brokers that represent interest that meets subsections (b)(1)
- (5) of this Rule.
(c) This Rule shall be in effect through December 31, 2008.

So ****ing stupid.

Way to increase volatility and transactions costs, brainiacs.

Why not? It worked so well with the financials for the last six weeks, right?


Oh, wait.

It's a dumb rule that's not necessary, but it's infinitely better than the uptick rule or the ban on short selling financials. It's so much better in fact that I would argue that short sellers should band together to lobby for this rule in place of any other short selling restrictions. They should also lobby to have added to it one addendum, that insider selling be prohibited during a temporary short sale prohibition so it doesn't unfairly benefit insiders.

That rule is only being considered for now.