Short selling and Knight Capital

Back in April, the SEC asked for comment on certain rule changes designed to make short sales more difficult, such as an uptick rule.

I'll proceed on the hypothesis that readers of this blog know what short selling is, and know what the uptick rule used to be.

I return to the subject, discussed here before, because Knight Capital has this week (June 18) submitted its own comment, signed by Leonard Amoruso, and it is quite discerning.

Amoruso writes that in Knight's view no change in Reg SHO is necessarily warranted, but that if the SEC must enact some change, "the approach which may have the least negative impact on liquidity and price discovery is the circuit breaker approach with the Modified uptick (bid test) -- with the appropriate exceptions, including for bona fide market making."

Knight Capital is a services firm that provides electronic access to the global capital markets. As such, it has an obvious interest in the liquidity of those markets, and it is aware of the role short selling plays in providing that liquidity.