CHX Gets Short Sale Test Exemption For Nasdaq Securities

The Securities and Exchange Commission has said the Chicago Stock Exchange does not have to propose a rule to apply a short sell price test for Nasdaq-listed securities.

The Securities and Exchange Commission has said the Chicago Stock Exchange does not have to propose a rule to apply a short sell price test for Nasdaq-listed securities. The SEC requires that exchange listed securities be subject to the SEC’s short sale price test, the so-called “tick test” governed by Rule 10a-1. The CHX asked the SEC if it needed to propose a short sale test rule for Nasdaq securities since the SEC approved in January the Nasdaq Stock Market’s application to become an exchange, said David Herron, CEO of the CHX. Nasdaq securities are not subject to the Commission’s “tick test” because the SEC’s Division of Market Regulation recently granted them an exemption (CR, 7/1). Nasdaq securities are instead subject to a similar price test governed by NASD Rule 3350. Without the exemption from the SEC, the CHX would have had to adopt a rule to apply the SEC’s “tick test” to Nasdaq-listed securities, according to the letter from the division. The exemption allows “Nasdaq securities traded on the facilities of a national securities exchange, such as CHX, to remain uncovered by any price test,” the letter stated. The wording indicates that the exemption applies to all exchanges. The SEC stated in its letter that the “tick test” exemption is effective until the end of the Pilot Program under Regulation SHO, the short sale rule. The Pilot has temporarily suspended short sale price tests for certain securities to evaluate the overall effectiveness of such price tests. The Pilot is to end Aug. 6, 2007. John Heine, spokesman for the SEC, declined to comment beyond the contents of the letter.