restriction.\724\ We believe that that there will be only minimal, if
any, implementation costs for a circuit breaker approach in addition to
the costs we estimated previously for the implementation of a
permanent, market-wide short sale price test rule because broker-
dealers relying on Rule 201(c) or Rule 201(d)(6) must establish written
policies and procedures required to comply with those provisions
regardless of whether the short sale price test restriction is adopted
on a permanent, market-wide basis or, in the case of Rule 201, adopted
in conjunction with a circuit breaker. Several other commenters agreed,
stating that the costs of the circuit breaker approach would be similar
to, or only incrementally higher than, the costs of a permanent,
market-wide approach.\725\
---------------------------------------------------------------------------

    \722\ See supra Section IX.E.1. (discussing estimated burdens of
the collection of information requirements applicable to trading
centers under Rule 201).
    \723\ See supra note 676.
    \724\ See Proposal, 74 FR at 18088.
    \725\ See, e.g., letter from Nasdaq OMX Group (Oct. 2009);
letter from Credit Suisse (Sept. 2009); letter from STA (June 2009).
---------------------------------------------------------------------------

    In addition, with respect to on-going monitoring and surveillance
costs of the circuit breaker approach, we recognize, as noted by one
commenter,\726\ that broker-dealers relying on Rule 201(c) or Rule
201(d)(6) must continuously monitor whether a security is subject to
the provisions of Rule 201 and that there will be costs associated with
such monitoring. However, we believe that these costs will be offset
because, under the circuit breaker approach, the alternative uptick
rule is time limited and will only apply on a stock by stock basis,
which will reduce our previously estimated costs for on-going
monitoring and surveillance. This is because broker-dealers relying on
Rule 201(c) will only need to monitor and surveil for compliance with
the alternative uptick rule, and broker-dealers relying on Rule
201(d)(6) will only need to monitor for compliance with the
requirements of that provision, during the limited period of time that
the circuit breaker is in effect with respect to a specific security.
As such, the circuit breaker approach will allow

regulatory, supervisory and compliance resources to focus on, and to
address, those situations where a specific security is experiencing
significant downward price pressure.\727\
---------------------------------------------------------------------------

    \726\ See letter from Glen Shipway (June 2009).
    \727\ See, e.g., letter from Nasdaq OMX Group (Oct. 2009);
letter from SIFMA (Sept. 2009).
---------------------------------------------------------------------------

    On balance, we believe that the estimates of the burdens associated
with the collection of information requirements for broker-dealers
included in the Proposal \728\ are appropriate with respect to Rule
201. Thus, our estimates have not changed from the Proposal, except to
the extent that total burden estimates have changed because we have
updated the estimated number of broker-dealers.\729\
---------------------------------------------------------------------------

    \728\ See Proposal, 74 FR at 18088-18089.
    \729\ The Proposal indicated that there were approximately 5,561
broker-dealers. This number was based on a review of 2007 FOCUS
Report filings reflecting registered broker-dealers, including
introducing broker-dealers. This number did not include broker-
dealers that were delinquent on FOCUS Report filings. See Proposal,
74 FR at 18086. We now estimate that there are approximately 5,178
broker-dealers. See supra note 652 and accompanying text.
---------------------------------------------------------------------------

    Although the exact nature and extent of the required policies and
procedures that a broker-dealer must establish under the broker-dealer
or the riskless principal provisions likely will vary depending upon
the nature of the broker-dealer (e.g., full service broker-dealer vs.
market maker), we estimate that it initially will, on average, take a
broker-dealer approximately 160 hours \730\ of legal, compliance,
information technology and business operations personnel time,\731\ to
develop the required policies and procedures. In addition to this
estimate of 160 hours, we expect that broker-dealers will incur one-
time external costs for outsourced legal services. While we recognize
that the amount of legal outsourcing utilized to help establish written
policies and procedures will vary widely from entity to entity, we
estimate that on average, each broker-dealer will outsource 50 hours
\732\ of legal time in order to establish policies and procedures in
accordance with the broker-dealer provision in Rule 201(c) and the
riskless principal provision in Rule 201(d)(6).
---------------------------------------------------------------------------

    \730\ We base this estimate of 160 hours on the estimated burden
hours we believe it will take a non-SRO trading center (which
includes broker-dealers) to develop similarly required policies and
procedures, since the policies and procedures required under the
broker-dealer provision or the riskless principal exception will be
similar to those required for non-SRO trading centers in complying
with paragraph (b) of Rule 201. See Regulation NMS Adopting Release,
70 FR 37496; see also Proposal, 74 FR at 18087.
    \731\ Based on experience and the estimates provided in
connection with Regulation NMS, we anticipate that of the 160 hours
we estimate will be spent to establish policies and procedures, 37
hours will be spent by legal personnel, 77 hours will be spent by
compliance personnel, 23 hours will be spent by information
technology personnel and 23 hours will be spent by business
operations personnel of the broker-dealer.
    \732\ As discussed above, we base our burden estimate of 50
hours of outsourced legal time on the burden estimate used for
Regulation NMS because the policies and procedures developed in
connection with that Regulation's Order Protection Rule are in many
ways similar to what a broker-dealer will need to do to comply with
the policies and procedures required under the broker-dealer
provision and the riskless principal exception of Rule 201. See
Regulation NMS Adopting Release, 70 FR 37496; see also Proposal, 74
FR at 18087.
---------------------------------------------------------------------------

    We estimate that, on average, there will be an initial one-time
burden of 160 burden hours per broker-dealer or 828,480 hours \733\ to
establish policies and procedures required under the broker-dealer
provision in Rule 201(c) and the riskless principal provision in Rule
201(d)(6). We estimate an average cost of approximately $103,560,000
for broker-dealers resulting from outsourced legal work.\734\
---------------------------------------------------------------------------

    \733\ The estimated 828,480 burden hours necessary for a broker-
dealer to establish policies and procedures are calculated by
multiplying 5,178 times 160 hours (5,178 x 160 hours = 828,480
hours). See supra note 730.
    \734\ This figure was calculated as follows: (50 legal hours x
$400 x 5,178 broker-dealers) = $103,560,000. Based on industry
sources, we estimate that the average hourly rate for outsourced
legal services in the securities industry is $400.
---------------------------------------------------------------------------

    Once a broker-dealer has established written policies and
procedures that are required under Rule 201(c) or Rule 201(d)(6), we
estimate that it will take, on average, a broker-dealer approximately
two hours per month of internal legal time and three hours of internal
compliance time to ensure that its written policies and procedures are
up-to-date and remain in compliance with Rule 201(c) or 201(d)(6), or a
total of 60 hours annually per respondent.\735\ In addition, we
estimate that, on average, it will take a broker-dealer approximately
16 hours per month of on-going compliance time, 8 hours per month of
on-going information technology time, and 4 hours per month of on-going
legal time associated with on-going monitoring and surveillance for and
enforcement of trading in compliance with Rule 201, or a total of 336
hours annually per respondent.\736\
---------------------------------------------------------------------------

    \735\ This figure was calculated as follows: (2 legal hours x 12
months) + (3 compliance hours x 12 months). As discussed above, this
burden estimate of 60 hours is based on experience and what was
estimated for a Regulation NMS respondent to ensure that its written
policies and procedures were up-to-date and remained in compliance.
    \736\ This figure was calculated as follows: (16 compliance
hours x 12 months) + (8 information technology hours x 12 months) +
(4 legal hours x 12 months) = 336 hours annually per respondent. As
discussed above, this burden estimate of 336 hours is based on
experience and what was estimated for Regulation NMS for similarly
required on-going monitoring and surveillance for and enforcement of
trading in compliance with that regulation's policies and procedures
requirement.
---------------------------------------------------------------------------

3. Marking Requirements
    The amendments to Rule 200(g) add a new marking requirement of
``short exempt.'' \737\ In particular, if the broker-dealer chooses to
rely on its own determination that it is submitting the short sale
order to the trading center at a price that is above the current
national best bid at the time of submission or to rely on an exception
specified in the Rule, it must mark the order as ``short exempt.''
\738\
---------------------------------------------------------------------------

    \737\ See Rule 200(g); see also supra Section IV. (discussing
the amendments to Rule 200(g)).
    \738\ See Rule 200(g)(2).
---------------------------------------------------------------------------

    In the Proposal, we provided estimates of the reporting and
recordkeeping burdens for the ``short exempt'' marking requirement. We
also requested comment, in the Proposal and Re-Opening Release, on the
accuracy of such estimates.\739\
---------------------------------------------------------------------------

    \739\ See Proposal, 74 FR at 18089; Re-Opening Release, 74 FR at
42036.
---------------------------------------------------------------------------

    Several commenters noted that the ``short exempt'' marking
requirement would impose significant implementation costs, but did not
provide a specific estimate of such costs.\740\ One commenter stated
that costs of the ``short exempt'' marking requirement would be worth
the benefits gained.\741\ We considered these comments in reviewing the
burden estimates of the ``short exempt'' marking requirement of Rule
200(g).
---------------------------------------------------------------------------

    \740\ See, e.g., letter from FIF (June 2009); letter from NSCP;
letter from RBC (June 2009).
    \741\ See letter from STA (June 2009).
---------------------------------------------------------------------------

    We also considered whether our estimates of the burdens associated
with the collection of information requirements for broker-dealers with
respect to the amendments to Rule 200(g) in conjunction with the
proposed modified uptick rule included in the Proposal \742\ would
change under the circuit breaker approach of Rule 201, but concluded,
as discussed below, that these estimates continue to represent
reasonable estimates under the circuit breaker approach.
---------------------------------------------------------------------------

    \742\ See Proposal, 74 FR at 18089.
---------------------------------------------------------------------------

    We believe that the ``short exempt'' marking requirements of Rule
200(g), in conjunction with a circuit breaker approach, will result in
largely the same implementation costs as would be incurred if the
``short exempt'' marking requirements were combined with a market-wide
short sale price test restriction. This is because broker-dealers
relying on the provisions of Rule 201(c) or Rule 201(d) would need to
make systems changes to implement the ``short exempt'' marking
requirements

regardless of whether the short sale price test restriction is adopted
on a permanent, market-wide basis or, in the case of Rule 201, adopted
in conjunction with a circuit breaker.
    In addition, with respect to on-going monitoring and surveillance
costs of the ``short exempt'' marking requirements in conjunction with
a circuit breaker approach, we recognize, as noted by one
commenter,\743\ that market participants will need to continuously
monitor whether a security is subject to the provisions of Rule 201 and
that there will be costs associated with such monitoring. However, we
believe that these costs will be offset because, under the circuit
breaker approach, use of the ``short exempt'' provisions of Rule 201(c)
and Rule 201(d) and the related marking requirements are time limited
and will only apply on a stock by stock basis, which will reduce our
previously estimated costs for on-going monitoring and surveillance.
This is because broker-dealers who choose to rely on Rule 201(c) or
Rule 201(d) will only need to monitor and surveil for compliance with
the requirements of those provisions and will only need to mark
qualifying orders ``short exempt'' during the limited period of time
that the circuit breaker is in effect with respect to a specific
security. As such, the circuit breaker approach will allow regulatory,
supervisory and compliance resources to focus on, and to address, those
situations where a specific security is experiencing significant
downward price pressure.\744\
---------------------------------------------------------------------------

    \743\ See letter from Glen Shipway (June 2009).
    \744\ See, e.g., letter from Nasdaq OMX Group (Oct. 2009);
letter from SIFMA (Sept. 2009).
---------------------------------------------------------------------------

    On balance, we believe our proposed estimates of the burdens
associated with the collection of information requirements of the
``short exempt'' marking requirement \745\ are appropriate with respect
to Rule 200(g) as adopted. Thus, our estimates have not changed from
the Proposal, except to the extent that total burden estimates have
changed because we have updated the estimated number of broker-
dealers.\746\
---------------------------------------------------------------------------

    \745\ See Proposal, 74 FR at 18089.
    \746\ See supra note 729.
---------------------------------------------------------------------------

    We believe that the implementation cost of the ``short exempt''
marking requirement will likely be similar to the implementation cost
of the order marking requirements of Rule 200(g) of Regulation SHO,
which had originally included the category of ``short exempt.''
Industry sources at that time estimated initial implementation costs
for the former ``short exempt'' marking requirement to be approximately
$100,000 to $125,000.\747\ Based on these estimates, as adjusted for
inflation, we estimate that the initial implementation cost of the
``short exempt'' marking requirement will be approximately $115,000 to
$145,000 per broker-dealer \748\ for a total initial implementation
cost of approximately $595,470,000 to $750,810,000 for all broker-
dealers.\749\
---------------------------------------------------------------------------

    \747\ See 2004 Regulation SHO Adopting Release, 69 FR at 48023.
    \748\ The adjustment for inflation was calculated using
information in the Consumer Price Index, U.S. Department of Labor,
Bureau of Labor Statistics.
    \749\ These figures were calculated as follows: ($115,000 x
5,178) = $595,470,000 and ($145,000 x 5,178) = $750,810,000.
---------------------------------------------------------------------------

    While not all broker-dealers likely will enter sell orders in
securities covered by the amendments to Rules 200(g) and 201 in a
manner that will subject them to this collection of information, we
estimate, for purposes of the PRA, that all of the approximately 5,178
registered broker-dealers will do so. For purposes of the PRA, the
Staff has estimated that a total of approximately 12.9 billion ``short
exempt'' orders are entered annually.\750\
---------------------------------------------------------------------------

    \750\ As we stated in the Proposal, our estimate of 12.9 billion
``short exempt'' orders was calculated based on a review of short
sale trades and short sale orders during August 2008. We believe
that August 2008 data is representative of a normal month of
trading. Specifically, we calculated that there were about 263
million short sale trades during August 2008 for Amex, FINRA,
Nasdaq, NYSE Arca, and NYSE market centers. Based on a review of
Rule 605 reports from the three largest market centers during August
2008, we estimate a ratio of 14.4 orders to trades. We gross up 263
million short sale trades by 14.4, which yields 3.8 billion short
sale orders during August 2008 or an annualized figure of 45.4
billion. We estimate that approximately 28.5% of short sale orders
are short exempt using Nasdaq short sale data from January to April
2005. We multiply 45.4 billion times 0.285 to obtain our estimate of
12.9 billion short exempt orders. See Proposal, 74 FR at 18089. We
also note that, because the circuit breaker rule will not be in
place at all times or for all securities, the frequency and,
therefore, the estimated burden of marking ``short exempt'' is
expected to be lower. We did not receive any comments on the
estimated number of annual ``short exempt'' orders.
---------------------------------------------------------------------------

    This is an average of approximately 2,491,309 annual responses by
each respondent.\751\ As we discussed in the Proposal, each response of
marking sell orders ``short exempt'' will take approximately .000139
hours (.5 seconds) to complete. This estimate is based on the same time
estimate for marking sell orders ``long'' or ``short'' used upon
adoption of Rule 200(g) under Regulation SHO.\752\ We believe this
estimate is appropriate because, in accordance with the current marking
requirements of Rule 200(g) of Regulation SHO, broker-dealers are
already required to mark a sell order either ``long'' or ``short.''
Thus, most broker-dealers already have the necessary mechanisms and
procedures in place and are already familiar with processes and
procedures to comply with the marking requirements of Rule 200(g) of
Regulation SHO and broker-dealers will be able to continue to use the
same mechanisms, processes and procedures to comply with the amendments
to Rules 200(g) and 200(g)(2). We note, however, that this estimate may
be too high given technological advances, such as automation of sell
order marking, since the adoption of Rule 200(g) in 2004.
---------------------------------------------------------------------------

    \751\ This figure was calculated as follows: 12.9 billion
``short exempt'' orders divided by 5,178 broker-dealers.
    \752\ See 2004 Regulation SHO Adopting Release, 69 FR at 48023,
n.140; see also 2003 Regulation SHO Proposing Release, 68 FR at
63000, n.232.
---------------------------------------------------------------------------

    Thus, the total approximate estimated annual hour burden per year
is 1,793,100 burden hours (12,900,000,000 orders marked ``short
exempt'' multiplied by 0.000139 hours/order marked ``short exempt'').
Our estimate for the paperwork compliance for the marking requirement
of Rule 200(g) for each broker-dealer is approximately 346 burden hours
(2,491,309 responses multiplied by 0.000139 hours/responses) or (a
total of 1,793,100 burden hours divided by 5,178 respondents).

F. Collection of Information Is Mandatory

1. Policies and Procedures Requirements
    The collection of information required under Rule 201's policies
and procedures requirement is mandatory for trading centers executing
and displaying short sale orders in covered securities. The collection
of information required under Rule 201's policies and procedures
requirements in connection with the broker-dealer provision in Rule
201(c) and the riskless principal exception in Rule 201(d)(6) is
mandatory for broker-dealers relying on these provisions.
2. Marking Requirements
    The collection of information is mandatory for all broker-dealers
submitting sale orders marked ``short exempt'' in reliance on one of
the provisions contained in paragraph (c) or (d) of Rule 201.

G. Confidentiality

1. Policies and Procedures Requirements
    We expect that the information collected pursuant to Rule 201's
required policies and procedures for trading centers will be
communicated to

the members, subscribers, and employees (as applicable) of all trading
centers. In addition, the information collected pursuant to Rule 201's
required policies and procedures for trading centers will be retained
by the trading centers and will be available to the Commission and SRO
examiners upon request, but not subject to public availability. The
information collected pursuant to Rule 201's broker-dealer provision
and the riskless principal exception will be retained by the broker-
dealers and will be available to the Commission and SRO examiners upon
request, but not subject to public availability.
2. Marking Requirements
    The information collected pursuant to the ``short exempt'' marking
requirements in Rule 200(g) and Rule 200(g)(2) will be submitted to
trading centers and will be available to the Commission and SRO
examiners upon request. The information collected pursuant to the
``short exempt'' marking requirement may be publicly available because
it may be published, in a form that would not identify individual
broker-dealers, by SROs that publish on their Internet Web sites
aggregate short selling volume data in each individual equity security
for that day and, on a one-month delayed basis, information regarding
individual short sale transactions in all exchange-listed equity
securities.

H. Record Retention Period

1. Policies and Procedures Requirements
    Any records generated in connection with Rule 201's requirements
that trading centers and broker-dealers (with respect to the broker-
dealer and riskless principal provisions) establish written policies
and procedures must be preserved in accordance with, and for the
periods specified in, Exchange Act Rules 17a-1 \753\ for SRO trading
centers and 17a-4(e)(7) \754\ for non-SRO trading centers and
registered broker-dealers.
---------------------------------------------------------------------------

    \753\ 17 CFR 240.17a-1.
    \754\ 17 CFR 240.17a-4(e)(7).
---------------------------------------------------------------------------

2. Marking Requirements
    The amendments to Rule 200(g) and Rule 200(g)(2) do not contain any
new record retention requirements. All registered broker-dealers that
are subject to the amendments are currently required to retain records
in accordance with Rule 17a-4(e)(7) under the Exchange Act.\755\
---------------------------------------------------------------------------

    \755\ Id.
---------------------------------------------------------------------------

X. Cost-Benefit Analysis

    We are sensitive to the costs and benefits of our rules. To assist
us in evaluating the costs and benefits of the amendments to Regulation
SHO, in the Proposal and the Re-Opening Release, we encouraged
commenters to discuss any costs or benefits that the proposed rules
might impose.\756\ In particular, we requested comment on the potential
costs for any modification to both computer systems and surveillance
mechanisms and for information gathering, management, and recordkeeping
systems or procedures, as well as any potential benefits resulting from
the proposed amendments for registrants, issuers, investors, broker-
dealers, other securities industry professionals, regulators, and
others.\757\ We also requested comment as to the extent to which
placing price restrictions on short selling could impact or lessen some
of the benefits of legitimate short selling or could lead to a decrease
in market efficiency, price discovery, or liquidity.\758\ Commenters
were requested to provide analysis and data to support their views on
the costs and benefits associated with the proposed amendments to Rule
201 and Rule 200(g).\759\ We discuss below the benefits and costs,
including cost mitigation features, of Rule 201.
---------------------------------------------------------------------------

    \756\ See Proposal, 74 FR at 18090; Re-Opening Release, 74 FR at
42037.
    \757\ See Proposal, 74 FR at 18090.
    \758\ See id.
    \759\ See id.; Re-Opening Release, 74 FR at 42037.
---------------------------------------------------------------------------

A. Benefits

    We believe it is appropriate at this time to adopt in Rule 201 a
circuit breaker approach combined with the alternative uptick rule.
Specifically, Rule 201(b) requires that a trading center establish,
maintain, and enforce written policies and procedures reasonably
designed to prevent the execution or display of a short sale order of a
covered security at a price that is less than or equal to the current
national best bid if the price of that covered security decreases by
10% or more from the covered security's closing price as determined by
the listing market for the covered security as of the end of regular
trading hours on the prior day.\760\ In addition, the Rule requires
that the trading center establish, maintain, and enforce written
policies and procedures reasonably designed to impose this short sale
price test restriction for the remainder of the day and the following
day when a national best bid for the covered security is calculated and
disseminated on a current and continuing basis by a plan processor
pursuant to an effective national market system plan.\761\
---------------------------------------------------------------------------

    \760\ Rule 201(b).
    \761\ Rule 201(b).
---------------------------------------------------------------------------

    In conjunction with the amendments to Rule 201, we are amending
Rule 200(g) of Regulation SHO to provide that a broker-dealer may mark
certain qualifying sell orders ``short exempt.'' In particular, if the
broker-dealer chooses to rely on its own determination that it is
submitting the short sale order to the trading center at a price that
is above the current national best bid at the time of submission or to
rely on an exception specified in the Rule, it must mark the order as
``short exempt.'' \762\
---------------------------------------------------------------------------

    \762\ See Rules 200(g) and 200(g)(2).
---------------------------------------------------------------------------

    We discuss below the benefits of Rule 201 with respect to two
inter-related aspects of the Rule: the short sale price test
restriction, specifically the alternative uptick rule, and the circuit
breaker approach that triggers application of that restriction. We have
separated the discussion into two parts in order to more clearly
address the comments that we received with respect to the various
aspects of Rule 201. However, the circuit breaker approach and the
alternative uptick rule under Rule 201 operate in conjunction with one
another and should not be considered isolated provisions.
1. Alternative Uptick Rule
    The alternative uptick rule is designed to prevent the execution or
display of short sale orders at a price that is less than or equal to
the current national best bid. By not allowing short sellers to sell at
or below the current national best bid, the alternative uptick rule
will allow long sellers, by selling at the bid, to sell first in a
declining market for a particular security. As the Commission has noted
previously in connection with short sale price test restrictions, a
goal of such restrictions is to allow long sellers to sell first in a
declining market.\763\ A short seller that is seeking to profit quickly
from accelerated, downward market moves may find it advantageous to be
able to short sell at the current national best bid. By placing long
sellers ahead of short sellers in the execution queue under certain
circumstances, Rule 201 will help promote capital formation, since
investors may be more willing to hold long positions if they know they
may have a preferred position over short sellers when they wish to
sell.\764\
---------------------------------------------------------------------------

    \763\ See supra note 17.
    \764\ But see infra notes 821 to 827 and accompanying text
(discussing the potential negative impact of Rule 201 on various
trading strategies that include short selling).

---------------------------------------------------------------------------

    In addition, because the alternative uptick rule, when triggered,
will generally permit short selling only at a price above the current
national best bid, the alternative uptick rule will not allow short
sales to get immediate execution at the bid.\765\ In other words, short
sellers will not be permitted to act as liquidity takers when the
alternative uptick rule applies, but will participate, if at all, as
liquidity providers (unless an exception applies), adding depth to the
market. Put another way, unless an exception applies, short sales will
execute only when purchasers arrive willing to buy at prices above the
national best bid. In discussing the alternative uptick rule, one
commenter stated that ``[n]ot only does it faithfully replicate the old
uptick rule it improves upon it by making each and every short sale a
liquidity providing transaction.'' \766\
---------------------------------------------------------------------------

    \765\ As noted by some commenters, there may be situations in
which a short seller could get immediate execution, such as where an
order is executed in a facility that provides executions at the mid-
point of the national best bid and offer. See, e.g., letter from ISE
(Sept. 2009); see also letter from BATS (Sept. 2009).
    \766\ Letter from Glen Shipway (Sept. 2009).
---------------------------------------------------------------------------

    Further, the alternative uptick rule is designed to help restore
investor confidence in the securities markets.\767\ It will also help
restore investor confidence during times of substantial uncertainty
because, once the circuit breaker has been triggered for a particular
security, long sellers will have preferred access to bids for the
security, and the security's continued price decline will more likely
be due to long selling and the underlying fundamentals of the issuer,
rather than to other factors. Bolstering investor confidence in the
markets should help to encourage investors to be more willing to invest
in the markets, thus adding depth and liquidity to the markets. In
addition, we note that a number of commenters stated that they believe
that a short sale price test restriction will aid small investors.\768\
---------------------------------------------------------------------------

    \767\ See, e.g., supra note 94 (citing comment letters
suggesting that reinstatement of short price test restrictions in
some form will help restore investor confidence in the markets).
    \768\ See supra note 97 (citing commenters who stated that a
short sale price test restriction would aid small investors).
---------------------------------------------------------------------------

    As we stated in the Proposal, short sale price test restrictions,
whether a permanent market-wide restriction or in combination with a
circuit breaker, might help prevent short selling, including
potentially manipulative or abusive short selling, from being used as a
tool to exacerbate a declining market in a security.\769\ Because the
alternative uptick rule only permits short selling at a price above the
current national best bid, unless an exception applies, we believe it
will be more effective than the proposed uptick rule or the proposed
modified uptick rule at achieving our goals in helping to prevent short
selling, including potentially manipulative or abusive short selling,
from being used as a tool to exacerbate a declining market in a
security. Several commenters stated that the alternative uptick rule
would dramatically decrease price pressure on a security \770\ and,
thereby, the ability of market participants to use short selling as a
market manipulation tool.\771\ Another commenter, in supporting the
alternative uptick rule, stated that it would ``likely be more
restrictive on short selling than the original Rule 10a-1 `uptick
rule'.'' \772\
---------------------------------------------------------------------------

    \769\ See Proposal, 74 FR at 18050, 18053, 18059, 18061, 18065,
18069; see also Securities and Exchange Commission, Special Study of
Securities Markets, H.R. Doc. No. 95, 88th Cong., 1st Sess., at 251
(1963).
    \770\ See, e.g., letter from BATS (Sept. 2009); letter from
Wells Fargo (Sept. 2009); see also letter from SIFMA (Sept. 2009)
(stating that a circuit breaker coupled with the alternative uptick
rule ``would limit instances where a security is the subject of
severe downward pressure'').
    \771\ See letter from BATS (Sept. 2009); letter from Wells Fargo
(Sept. 2009); letter from STA (Sept. 2009); letter from Glen Shipway
(Sept. 2009).
    \772\ Letter from Virtu Financial.
---------------------------------------------------------------------------

    In addition, we believe that the alternative uptick rule is
preferable to the proposed modified uptick rule or the proposed uptick
rule, in part, because it will be easier and less costly to implement
and monitor. Unlike the proposed modified uptick rule and the proposed
uptick rule, which would have required sequencing of the national best
bid or last sale price, the alternative uptick rule references only the
current national best bid. Several commenters expressed support for the
alternative uptick rule, stating that the alternative uptick rule was
preferable to the proposed modified uptick rule or the proposed uptick
rule because it would eliminate sequencing issues \773\ and would be
easier and less costly to implement.\774\ One commenter noted that the
alternative uptick rule would simplify on-going surveillance and
enforcement, as compared to the other proposed short sale price test
restrictions.\775\ In addition, we believe that the implementation and
on-going monitoring and compliance costs of the alternative uptick rule
are justified by the benefits provided in preventing short selling,
including potentially manipulative or abusive short selling, from being
used as a tool to exacerbate a declining market in a security.
---------------------------------------------------------------------------

    \773\ See, e.g., letter from Direct Edge (June 2009); letter
from BATS (Sept. 2009); letter from Credit Suisse (Sept. 2009);
letter from STA (Sept. 2009); letter from Wells Fargo (Sept. 2009);
see also letter from Hudson River Trading (expressing a preference
for the alternative uptick rule, as opposed to the proposed modified
uptick rule or the proposed uptick rule, if in conjunction with a
circuit breaker); see also supra notes 661 to 664 and accompanying
text.
    \774\ See, e.g., letter from BATS (Sept. 2009); letter from
Credit Suisse (Sept. 2009); letter from European Investors (Sept.
2009); letter from Goldman Sachs (Sept. 2009); letter from STA
(Sept. 2009); letter from Glen Shipway (Sept. 2009); letter from T.
Rowe Price (Sept. 2009); letter from Wells Fargo (Sept. 2009); see
also letter from Hudson River Trading; see also supra notes 661 to
664 and accompanying text.
    \775\ See letter from SIFMA (Sept. 2009).
---------------------------------------------------------------------------

2. Circuit Breaker Approach
    Under the circuit breaker approach, the alterative uptick rule will
apply only if the price of a covered security has declined by 10% or
more from the covered security's closing price as determined by the
listing market for the covered security as of the end of regular
trading hours on the prior day.\776\ In addition, the short sale price
test restriction will only remain in place for the remainder of the day
and for the following day.\777\ The listing market for each covered
security must determine whether that covered security is subject to
Rule 201 \778\ and must immediately notify the single plan processor
responsible for consolidation of information for the covered security
in accordance with Rule 603(b) of Regulation NMS \779\ of the fact that
a covered security has become subject to the short sale price test
restriction of Rule 201. The plan processor must then disseminate this
information.\780\
---------------------------------------------------------------------------

    \776\ See Rule 201(b).
    \777\ See id.
    \778\ See Rule 201(b)(3).
    \779\ 17 CFR 242.603(b); see supra note 368.
    \780\ See Rule 201(b)(3); 17 CFR 242.603(b).
---------------------------------------------------------------------------

    We believe that a circuit breaker approach strikes the appropriate
balance between our goal of preventing short selling, including
potentially manipulative or abusive short selling, from being used as a
tool to exacerbate a declining market in a security and the need to
allow for the continued smooth functioning of the markets, including
the provision of liquidity and price efficiency in the markets.\781\
The circuit breaker approach of Rule 201 will help benefit the market
for a particular security by allowing participants, when a security is
undergoing a significant intra-day price decline, an opportunity to re-
evaluate circumstances and respond to volatility in that security. We
also believe that a circuit breaker will better target short selling
that may be related to potential bear raids \782\ and other forms of
manipulation that may be

used to exacerbate a price decline in a covered security.
---------------------------------------------------------------------------

    \781\ See supra Section III.A.4.
    \782\ See supra note 36 and accompanying text.
---------------------------------------------------------------------------

    In response to our requests for comment, some commenters expressed
support for a circuit breaker approach because it would be more
narrowly-tailored to address our concerns about the effects of short
selling in a market subject to a significant downturn than a permanent,
market-wide short sale price test restriction.\783\ For example, one
commenter noted that ``by implementing the alternative uptick rule only
after a circuit breaker threshold has been reached, [the commenter]
believes the Commission would strike the appropriate balance between
the desirable goals of maximizing efficiency when the market is
operating within normal trading ranges and prohibiting potentially
abusive short selling when it is not, while refraining from imposing
excessive implementation costs on the industry.'' \784\ Another
commenter stated that a circuit breaker is preferable because it ``will
restrict short selling when prices begin to decline substantially and
short selling becomes more likely to be abusive and potentially
harmful.'' \785\
---------------------------------------------------------------------------

    \783\ See, e.g., letter from Direct Edge (June 2009); letter
from Citadel et al. (Sept. 2009); letter from Direct Edge (Sept.
2009); letter from BATS (Sept. 2009); letter from Goldman Sachs
(Sept. 2009); letter from Hudson River Trading (Sept. 2009); letter
from Qtrade; letter from SIFMA (Sept. 2009); letter from Virtu
Financial; see also letter from Goldman Sachs (June 2009); letter
from SIFMA (June 2009); letter from Nasdaq OMX Group (Oct. 2009).
    \784\ Letter from BATS (Sept. 2009).
    \785\ Letter from Nasdaq OMX Group (Oct. 2009); see also letter
from Goldman Sachs (June 2009); letter from BATS (Sept. 2009);
letter from SIFMA (Sept. 2009); letter from Credit Suisse (Sept.
2009); letter from Virtu Financial.
---------------------------------------------------------------------------

    As discussed above, short selling is an important tool in price
discovery and the provision of liquidity to the market, and we
recognize that imposition of a short selling circuit breaker that when
triggered imposes the alternative uptick rule could restrict otherwise
legitimate short selling activity during periods of significant
volatility. Under the circuit breaker approach, the alternative uptick
rule will only be imposed when a covered security has experienced an
intra-day price decline of 10% or more and will only apply for the
remainder of the day and the following day. As discussed
previously,\786\ commenters' estimates and the Staff's analysis show
that a 10% circuit breaker threshold generally should affect only a
limited percentage of covered securities. In addition, when triggered,
the short sale price test restriction will apply for a limited period
of time, i.e., the remainder of the day and the following day, rather
than all the time. Thus, Rule 201 is structured so that it will not be
triggered for the majority of covered securities most of the time and,
thereby, will not interfere with the smooth functioning of the markets
for those securities, including when prices in such securities are
undergoing minimal downward price pressure or are stable or rising. To
the extent that Rule 201 results in a disruption to the smooth
functioning of the markets, including the provision of liquidity and
price efficiency in the markets, we believe that such costs are
justified by the benefits provided by the Rule in preventing short
selling, including potentially manipulative or abusive short selling,
from being used as a tool to exacerbate a declining market in a
security.
---------------------------------------------------------------------------

    \786\ See supra Section III.A.5. (discussing the circuit breaker
trigger level).
---------------------------------------------------------------------------

    Several commenters stated their belief that implementing short sale
price test restrictions on a permanent, market-wide basis, rather than
in combination with a circuit breaker, would substantially diminish the
benefits that short sellers bring to the markets.\787\ Another
commenter stated that a circuit breaker is preferable to a permanent,
market-wide short sale price test restriction because it ``permits
normal market activity while a stock is trading in a natural range and
short selling is more likely to benefit the market (by, for example,
increasing price discovery and liquidity).'' \788\
---------------------------------------------------------------------------

    \787\ See, e.g., letter from Direct Edge (Sept. 2009); letter
from Credit Suisse (Sept. 2009).
    \788\ Letter from Nasdaq OMX Group (Oct. 2009); see also letter
from Goldman Sachs (June 2009); letter from BATS (Sept. 2009);
letter from SIFMA (Sept. 2009); letter from Credit Suisse (Sept.
2009); letter from Virtu Financial.
---------------------------------------------------------------------------

    The Commission has long held the view that circuit breakers may
help restore investor confidence during times of substantial
uncertainty.\789\ We believe that the requirements of Rule 201 will
produce such benefits. By imposing the alternative uptick rule once a
security's price is experiencing a significant intra-day price decline,
the short selling circuit breaker rule in Rule 201(b) is designed to
target only those securities that experience such declines and,
therefore, will help to prevent short selling from being used as a tool
to exacerbate the decline in the price of those securities. This
approach establishes a narrowly-tailored Rule that targets only those
securities experiencing such a decline and which only applies a short
sale price test restriction for a limited period of time. We believe
that addressing short selling in connection with such declines will
help restore investor confidence in the markets generally. One
commenter noted that ``preventing rapid declines in stock prices
strengthens investor confidence.'' \790\ Another commenter stated that
a circuit breaker triggering a short sale price test restriction would
provide ``investors with confidence that short sellers will be
restricted from conducting any perceived market manipulation strategies
such as `bear raids.' '' \791\
---------------------------------------------------------------------------

    \789\ See, e.g., 1998 Release, 63 FR 18477; see also Proposal,
74 FR at 18067.
    \790\ Letter from BIO.
    \791\ Letter from Brian M. Collie, Esq., Associate, Taurus
Compliance Consulting, LLC, dated June 19, 2009 (``Taurus
Compliance'').
---------------------------------------------------------------------------

    A circuit breaker approach will also allow regulatory, supervisory
and compliance resources to focus on, and to address, those situations
where a specific security is experiencing significant downward price
pressure. As noted by one commenter, a circuit breaker ``is
particularly efficient in stable and rising markets because it avoids
imposing continuous monitoring and compliance costs where there is
little or no corresponding risk of abusive short selling.'' \792\
---------------------------------------------------------------------------

    \792\ Letter from Nasdaq OMX Group (Oct. 2009); see also letter
from SIFMA (Sept. 2009).
---------------------------------------------------------------------------

    Requiring the listing market for a covered security to determine
whether the security has become subject to the short sale price test
restrictions of Rule 201 will help ensure consistency for each covered
security with respect to such determinations as only the listing market
for that covered security will be making the determination. In
addition, we believe that listing markets will be in the best position
to respond to anomalous or unforeseeable events that may impact a
covered security's price, such as an erroneous trade, because the
listing markets generally have in place specific procedures designed to
address such events.\793\ Further, because the single plan processors
currently receive information from listing markets regarding trading
restrictions (i.e. Regulatory Halts as defined in those plans) on
individual securities and disseminate such information, the
requirements of Rule 201(b)(3) are similar to existing obligations on
plan processors pursuant to the requirements of Regulation NMS, the CTA
and CQ Plans and the Nasdaq UTP Plan.
---------------------------------------------------------------------------

    \793\ See supra note 327 (discussing NYSE's procedures to ensure
the accuracy and reliability of its closing price).
---------------------------------------------------------------------------

3. Marking Requirements
    The ``short exempt'' marking requirements under Rule 200(g) will
provide a record that a broker-dealer is availing itself of the
provisions of

paragraph (c) or (d) of Rule 201. Thus, the records created pursuant to
the ``short exempt'' marking requirements of Rule 200(g) will aid
surveillance by SROs and the Commission for compliance with the
provisions of Rule 201. In addition, the ``short exempt'' marking
requirement will provide an indication to a trading center regarding
when it must execute or display a short sale order without regard to
whether the order is at a price that is less than or equal to the
current national best bid and will aid broker-dealers in complying with
their legal requirements.
    In response to our requests for comment, several commenters
indicated that requiring broker-dealers to mark all sell orders
``long,'' ``short,'' or ``short exempt'' would provide valuable
information to the Commission \794\ and that such information would be
worth the costs of requiring such marking.\795\ One commenter stated
that the information provided by a ``short exempt'' marking requirement
would provide the Commission with data on the extent to which
exceptions are being used to circumvent the requirements of Rule
201.\796\
---------------------------------------------------------------------------

    \794\ See, e.g., letter from STA (June 2009); letter from CFA.
    \795\ See, e.g., letter from STA (June 2009).
    \796\ See letter from STA (June 2009).
---------------------------------------------------------------------------

B. Costs

    In the Proposal, we discussed the anticipated costs of the proposed
short sale price test restrictions, both on a permanent, market-wide
basis and in conjunction with a circuit breaker.\797\ We requested
comment, in the Proposal and Re-Opening Release, on the costs
associated with the proposed amendments.\798\ In particular, we
requested comment on the potential costs for any modification to both
computer systems and surveillance mechanisms and for information
gathering, management, and recordkeeping systems or procedures.\799\ We
also requested comment as to the extent to which placing price
restrictions on short selling could impact or lessen some of the
benefits of legitimate short selling or could lead to a decrease in
market efficiency, price discovery, or liquidity.\800\ We discuss the
comments that we received with respect to the costs of Rule 201 in
detail in Sections X.B.1., X.B.2., X.B.3 and X.B.4., below.
---------------------------------------------------------------------------

    \797\ See Proposal, 74 FR at 18092-18100.
    \798\ See Proposal, 74 FR at 18100; Re-Opening Release, 74 FR at
42037.
    \799\ See Proposal, 74 FR at 18090.
    \800\ See id.
---------------------------------------------------------------------------

    We recognize that Rule 201 will impose costs on market participants
to implement and assure compliance with the requirements of the Rule.
After considering empirical evidence regarding former Rule 10a-1 and
the comments that we received in response to the Proposal and the Re-
Opening Release, as discussed below, we believe that Rule 201 will have
a minimal, if any, negative effect on market liquidity, price
efficiency, and quote depths.\801\ In addition, we recognize that there
will be market costs associated with Rule 201 in terms of the potential
impact of such a short sale-related circuit breaker on execution speed
and probability. By requiring for a limited time-period that short
sales may only be executed or displayed above the current national best
bid once a covered security has experienced an intra-day price decline
of 10% or more, Rule 201 may slow the speed of executions and impose
additional costs on market participants, including buyers.\802\ Such
costs may increase the costs of legitimate short selling.
---------------------------------------------------------------------------

    \801\ See infra note 878 (citing empirical evidence showing that
former Rule 10a-1 did not have an effect on market liquidity and
price efficiency and that price test restrictions resulted in an
increase in quote depths). We note that, although the alternative
uptick rule is by definition more restrictive than the proposed
modified uptick rule, differences between the operation of the
proposed uptick rule and the alternative uptick rule mean that one
approach or the other would be more restrictive in particular
circumstances. See, e g., supra note 242 and accompanying text
(discussing automated trade matching systems).
    \802\ As discussed above, on the day the Pilot went into effect,
listed Pilot securities underperformed listed control group
securities by approximately 24 basis points. The Pilot and control
group securities, however, had similar returns over the first six
months of the Pilot. See supra note 52 (referencing Staff's Summary
Pilot Report at 8).
---------------------------------------------------------------------------

    To the extent that Rule 201 results in increased costs for short
selling in covered securities that trigger the alternative uptick rule,
it may increase the trading costs of legitimate short selling for these
securities and may result in a reduction in short selling generally.
Restricting short selling may also reduce ``long'' activity where the
short selling is part of a larger trading strategy.
    We believe, however, that such costs will be mitigated by the
circuit breaker approach of Rule 201. Under the circuit breaker
approach, the alternative uptick rule will only be imposed when a
covered security has experienced an intra-day price decline of 10% or
more and will only apply for the remainder of the day and the following
day. As discussed previously,\803\ commenters' estimates and the
Staff's analysis show that a 10% circuit breaker threshold generally
should affect only a limited percentage of covered securities. In
addition, when triggered, the short sale price test restriction will
apply for a limited period of time, i.e., the remainder of the day and
the following day, rather than all the time. Thus, Rule 201 is
structured so that it will not be triggered for the majority of covered
securities most of the time and, thereby, will not interfere with the
smooth functioning of the markets for those securities, including when
prices in such securities are undergoing minimal downward price
pressure or are stable or rising. To the extent that Rule 201 results
in increased costs for short selling in covered securities that trigger
the alternative uptick rule, a reduction in short selling generally,
and a reduction in ``long'' activity where the short selling is part of
a larger trading strategy, we believe that such costs are justified by
the benefits provided by the Rule in preventing short selling,
including potentially manipulative or abusive short selling, from being
used as a tool to exacerbate a declining market in a security.
---------------------------------------------------------------------------

    \803\ See supra Section III.A.5. (discussing the circuit breaker
trigger level).
---------------------------------------------------------------------------

    In addition, we recognize that Rule 201, when triggered, will
impose a short sale price test restriction, when, currently, there is
an absence of any short sale price test restrictions. This will result
in costs in terms of modifications to systems and surveillance
mechanisms, as well as changes to processes and procedures. We
anticipate that these changes will likely result in immediate
implementation costs for trading centers and SROs and other market
participants associated with reprogramming trading and surveillance
systems to account for short sale price test restrictions based on best
bid information, as discussed in more detail below. We also believe
Rule 201 will impose costs on trading centers and SROs and other market
participants related to systems changes to computer software,
reprogramming costs, and surveillance and compliance costs, as well as
staff time and technology resources, associated with monitoring
compliance with Rule 201, as discussed below.
    Moreover, imposing a short sale-related circuit breaker that, if
triggered, will impose a short sale price test restriction, when there
are currently no short sale price test restrictions in place also may
mean that staff (compliance personnel, associated persons, etc.) may
need to be trained or re-trained regarding rules related to short sale
price test restrictions. As such, we believe Rule 201 may impose
training and compliance costs for trading

centers, SROs, and other market participants.
    However, as discussed below, because the alternative uptick rule
references only the current national best bid, unlike the proposed
modified uptick rule and the proposed uptick rule, which would have
required sequencing of the national best bid or last sale price, we
believe that the alternative uptick rule will be easier and less costly
to implement and monitor than the proposed modified uptick rule or the
proposed uptick rule.\804\
---------------------------------------------------------------------------

    \804\ See infra Section X.B.1.b.i. and Section X.B.1.b.ii.
(discussing the implementation and on-going monitoring and
surveillance costs of the alternative uptick rule on trading centers
and broker-dealers).
---------------------------------------------------------------------------

    Further, we note that the policies and procedures that are required
to be implemented under Rule 201 are similar to those that are required
under the Order Protection Rule of Regulation NMS.\805\ Thus, we
believe trading centers and broker-dealers may already be familiar with
establishing, maintaining, and enforcing trading-related policies and
procedures, including programming their trading systems in accordance
with such policies and procedures. We believe this familiarity may
reduce the implementation costs of Rule 201 and may make Rule 201 less
burdensome to implement.
---------------------------------------------------------------------------

    \805\ See Regulation NMS Adopting Release, 70 FR 37496; see also
Proposal, 74 FR at 18087; 17 CFR 242.611.
---------------------------------------------------------------------------

    In addition, we believe that the implementation, and on-going
monitoring and compliance costs of Rule 201 are justified by the
benefits provided by the Rule in preventing short selling, including
potentially manipulative or abusive short selling, from being used as a
tool to exacerbate a declining market in a security.
    We discuss below the costs of Rule 201 with respect to two inter-
related aspects of the Rule: The short sale price test restriction,
specifically the alternative uptick rule, and the circuit breaker
approach that triggers application of that restriction. We have
separated the discussion into two parts in order to more clearly
address the comments that we received with respect to the various
aspects of Rule 201. However, the circuit breaker approach and the
alternative uptick rule under Rule 201 operate in conjunction with one
another and should not be considered isolated provisions.
1. Alternative Uptick Rule
    Rule 201 requires a trading center to have written policies and
procedures reasonably designed to prevent the execution or display of a
short sale order of a covered security at a price that is less than or
equal to the current national best bid if the price of that covered
security decreases by 10% or more from the covered security's closing
price as determined by the listing market for the covered security as
of the end of regular trading hours on the prior day.\806\
---------------------------------------------------------------------------

    \806\ See Rule 201(b)(1).
---------------------------------------------------------------------------

a. Impact on Market Quality
    As stated above, in the Proposal and Re-Opening Release, we
requested comment on the costs of a short sale price test
restriction,\807\ and specifically as to the extent to which placing
price restrictions on short selling could impact or lessen some of the
benefits of legitimate short selling or could lead to a decrease in
market efficiency, price discovery, or liquidity.\808\
---------------------------------------------------------------------------

    \807\ See Proposal, 74 FR at 18090, 18100; Re-Opening Release,
74 FR at 42037.
    \808\ See Proposal, 74 FR at 18090.
---------------------------------------------------------------------------

    The Commission received comments stating that the alternative
uptick rule, or any short sale price restriction for that matter, would
reduce the benefits that short selling provides to the markets.\809\
For example, commenters stated that a short sale price test restriction
would negatively impact liquidity,\810\ market volume,\811\ bid-ask
spreads and price discovery.\812\ Several commenters also stated that a
short sale price test restriction might increase volatility.\813\
---------------------------------------------------------------------------

    \809\ See, e.g., letter from Prof. Lipkin; letter from Citadel
et al. (June 2009); letter from GETCO (June 2009); letter from
Goldman Sachs (June 2009); letter from ICI (June 2009); letter from
ISDA; letter from Lime Brokerage (June 2009); letter from RBC (June
2009); letter from Vanguard (June 2009); letter from Allston Trading
(Sept. 2009); letter from TD Asset Management; letter from EWT
(Sept. 2009); letter from BATS (Sept. 2009); letter from Citadel et
al. (Sept. 2009); letter from CPIC (Sept. 2009); letter from Credit
Suisse (Sept. 2009); letter from EWT (Sept. 2009); letter from
Dialectic Capital (Sept. 2009); letter from GETCO (Sept. 2009);
letter from Hudson River Trading; letter from Lime Brokerage (Sept.
2009); letter from RBC (Sept. 2009); letter from STA (Sept. 2009);
letter from STANY (Sept. 2009); letter from Vanguard (Sept. 2009);
letter from Bingham McCutchen; letter from MFA (Oct. 2009); letter
from Nasdaq OMX Group (Oct. 2009); see also letter from Credit
Suisse (Mar. 2009).
    \810\ See, e.g., letter from Chad Stogel, Trillium Trading, LLC,
dated May 26, 2009 (``Chad Stogel''); letter from Citadel et al.
(June 2009); letter from Credit Suisse (June 2009); letter from Lime
Brokerage (June 2009); letter from MFA (June 2009); letter from STA
(June 2009); letter from EWT (Sept. 2009); letter from BATS (Sept.
2009); letter from Citadel et al. (Sept. 2009); letter from Lime
Brokerage (Sept. 2009); letter from RBC (Sept. 2009); letter from
STA (Sept. 2009); letter from Bingham McCutchen; see also letter
from Credit Suisse (Mar. 2009).
    \811\ See, e.g., letter from Chad Stogel; letter from Citadel et
al. (June 2009); letter from Credit Suisse (June 2009); letter from
MFA (June 2009); letter from STA (June 2009); letter from EWT (Sept.
2009); letter from BATS (Sept. 2009); letter from Citadel et al.
(Sept. 2009); letter from RBC (Sept. 2009); letter from Bingham
McCutchen; see also letter from Credit Suisse (Mar. 2009).
    \812\ See, e.g., letter from Credit Suisse (June 2009); letter
from MFA (June 2009); letter from Lime Brokerage (June 2009); letter
from STA (June 2009); letter from RBC (Sept. 2009); see also letter
from Credit Suisse (Mar. 2009).
    \813\ See, e.g., letter from Prof. Lipkin; letter from AIMA;
letter from Citadel et al. (June 2009); letter from Credit Suisse
(June 2009); letter from RBC (June 2009); letter from SIFMA (June
2009); letter from Citadel et al. (Sept. 2009); letter from TD Asset
Management; letter from Barclays (Sept. 2009); see also letter from
NSCP.
---------------------------------------------------------------------------

    We believe, however, that the short sale price test restriction of
Rule 201 will have a limited negative effect on liquidity, market
volume, bid-ask spreads, price discovery and volatility. The Pilot
Results found that the former tick test of Rule 10a-1 and former bid
test of NASD, which were permanent, market-wide short sale price tests,
did not have a significant impact on daily volatility, and also found
some evidence that the short sale price tests dampened intra-day
volatility for smaller stocks.\814\ In addition, the Pilot Results
found that the Pilot data provided limited evidence that then-current
short sale price test restrictions distort a security's price. The
Pilot Results also found that the short sale price test restrictions
resulted in an increase in quote depths.\815\ Realized liquidity
levels, however, were unaffected by the removal of such short sale
price test restrictions.\816\ In addition, one study concluded that
former Rule 10a-1 had little or no effect on price efficiency.\817\
Another study found no evidence that former Rule 10a-1 negatively
impacted price discovery.\818\ Due to differences in the operation of
former Rule 10a-1 and Rule 201, when it applies, the alternative uptick
rule under Rule 201 will be more restrictive than former Rule 10a-1 in
some circumstances and less restrictive in others.\819\ As discussed
above, however, due to the circuit breaker approach in Rule 201, the
alternative uptick rule of Rule 201 generally will apply to a limited
number of covered securities \820\ and will apply only when

the circuit breaker has been triggered for a covered security. As such,
it will not be triggered for the majority of covered securities at any
given time and, when triggered, will remain in effect for a short
duration--that day and the following day. Considering the empirical
studies and the comments, and because of the limited scope and duration
of Rule 201, we believe that the impact of Rule 201, if any, on
liquidity, market volume, bid-ask spreads, price discovery and
volatility will be limited. To the extent that Rule 201 negatively
impacts liquidity, market volume, bid-ask spreads, price discovery and
volatility, we believe that such costs are justified by the benefits
provided by the Rule in preventing short selling, including potentially
manipulative or abusive short selling, from being used as a tool to
exacerbate a declining market in a security.
---------------------------------------------------------------------------

    \814\ See Staff's Summary Pilot Report at 55-56.
    \815\ See Staff's Summary Pilot Report at 55; see also Karl B.
Diether, Kuan Hui Lee and Ingrid M. Werner, 2009, It's SHO Time!
Short-Sale Price-Tests and Market Quality, Journal of Finance 64:37.
    \816\ See supra note 54.
    \817\ See J. Julie Wu, Uptick Rule, short selling and price
efficiency, Aug. 14, 2006.
    \818\ See Lynn Bai, 2008, The Uptick Rule of Short Sale
Regulation--Can it Alleviate Downward Price Pressure from Negative
Earnings Shocks? Rutgers Business Law Journal 5:1-63.
    \819\ See, e g., supra note 242 and accompanying text
(discussing automated trade matching systems).
    \820\ See supra Section III.A.5. (discussing the circuit breaker
trigger level and duration).
---------------------------------------------------------------------------

    The Commission received a number of comments addressing the extent
to which a short sale price test restriction might cause a reduction in
short selling.\821\ For example, commenters stated that a reduction in
short selling might result from: The implementation costs and on-going
compliance costs of a short sale price test restriction; \822\
uncertainty about whether a short sale order can be executed; \823\ and
reduced use of trading strategies that are market neutral or that rely
on the ability to hedge through short sales.\824\ Several commenters
stated that the alternative uptick rule would restrict short sales more
than the other proposed short sale price test restrictions,
specifically because it would not allow immediate execution, and fewer
short sales might be executed as a result.\825\ A number of commenters
stated that a reduction in short selling would result in decreased
liquidity, wider price spreads, and more costly trading for investors
overall.\826\ Some commenters stated that such an increase in costs to
investors would have a negative effect on investor confidence.\827\
---------------------------------------------------------------------------

    \821\ See, e.g., letter from Peter J. Driscoll, Chairman, John
C. Giesea, President and CEO, Security Traders Association, dated
May 4, 2009 (``STA (May 2009)''); letter from Citadel et al. (June
2009); letter from CPIC (June 2009); letter from MFA (June 2009);
letter from Allston Trading (Sept. 2009); letter from Barclays
(Sept. 2009); letter from CBOE (Sept. 2009); letter from Citadel et
al. (Sept. 2009); letter from CPIC (Sept. 2009); letter from EWT
(Sept. 2009); letter from GETCO (Sept. 2009); letter from ICI (Sept.
2009); letter from ISE (Sept. 2009); letter from RBC (Sept. 2009);
letter from MFA (Oct. 2009).
    \822\ See, e.g., letter from CPIC (June 2009); letter from
Barclays (Sept. 2009).
    \823\ See, e.g., letter from STA (May 2009); letter from Citadel
et al. (June 2009); letter from STA (June 2009); letter from
Barclays (Sept. 2009); letter from STA (Sept. 2009); see also letter
from Lime Brokerage (June 2009) (explaining specifically the
increased risk that would be associated with virtual market making
strategies).
    \824\ See, e.g., letter from STA (May 2009); letter from Credit
Suisse (June 2009); letter from STA (June 2009); letter from
Barclays (Sept. 2009); letter from STA (Sept. 2009); letter from MFA
(Oct. 2009); see also letter from Lime Brokerage (June 2009)
(explaining specifically the increased risk that would be associated
with virtual market making strategies).
    \825\ See, e.g., letter from Allston Trading (Sept. 2009);
letter from Barclays (Sept. 2009); letter from CBOE (Sept. 2009);
letter from Citadel et al. (Sept. 2009); letter from CPIC (Sept.
2009); letter from EWT (Sept. 2009); letter from GETCO (Sept. 2009);
letter from ICI (Sept. 2009); letter from ISE (Sept. 2009); letter
from RBC (Sept. 2009); letter from MFA (Oct. 2009).
    \826\ See, e.g., letter from STA (May 2009); letter from Chad
Stogel; letter from Allston Trading (June 2009); letter from Credit
Suisse (June 2009); letter from STA (June 2009); letter from STA
(Sept. 2009); letter from MFA (June 2009).
    \827\ See, e.g., letter from Citadel et al. (June 2009); letter
from Vanguard (June 2009); letter from Allston Trading (Sept. 2009);
letter from EWT (Sept. 2009); letter from GETCO (Sept. 2009); see
also letter from NSCP (stating that, without empirical evidence of
inefficiency or failure in the equity markets that both caused
deterioration of investor confidence and that would be remedied by a
short sale price test restriction, a loss in confidence in the
Commission as a fair and impartial regulator could do more harm in
the long-run to damage the confidence of investors); letter from STA
(June 2009) (stating that ``[p]romulgating a rule that would not
have any impact on the execution of abusive short sales may, in
fact, foster further deterioration of investor confidence'').
---------------------------------------------------------------------------

    The short sale price test restriction of Rule 201 may cause a
limited reduction in short selling as a result of the implementation
costs and on-going compliance costs of a short sale price test
restriction; uncertainty about whether a short sale order can be
executed; and reduced use of trading strategies that are market neutral
or that rely on the ability to hedge through short sales. However, the
alternative uptick rule will only be imposed when a covered security
has experienced an intra-day price decline of 10% or more and will only
apply for the remainder of the day and the following day. Due to the
limited scope and applicability of Rule 201, we believe that any
reduction in short selling will be limited.\828\ In addition, we
believe that any such reduction in short selling will have a minimal,
if any, resulting negative impact on liquidity and price efficiency. As
noted above, the Pilot Results found that the Pilot data provided
limited evidence that then-current short sale price test restrictions,
which were permanent and market-wide, distort a security's price. The
Pilot Results also found that the short sale price test restrictions
resulted in an increase in quote depths.\829\ Realized liquidity
levels, however, were unaffected by the removal of such short sale
price test restrictions.\830\ In addition, one study concluded that
former Rule 10a-1 had little or no negative effect on price
efficiency.\831\ Another study found no evidence that former Rule 10a-1
negatively impacted price discovery.\832\ Due to differences in the
operation of former Rule 10a-1 and Rule 201, when it applies, the
alternative uptick rule under Rule 201 will be more restrictive than
former Rule 10a-1 in some circumstances and less restrictive in
others.\833\ As discussed above, however, due to the circuit breaker
approach in Rule 201, the alternative uptick rule of Rule 201 generally
will apply to a limited number of covered securities \834\ and will
apply only when the circuit breaker has been triggered for a covered
security. As such, it will not be triggered for the majority of covered
securities at any given time and, when triggered, will remain in effect
for a short duration--that day and the following day. Considering the
empirical studies and the comments, and due to the limited scope and
duration of Rule 201, we believe that any reduction in short selling as
a result of Rule 201 will have a minimal, if any, negative impact on
liquidity and price efficiency. To the extent that Rule 201 has a
negative impact on liquidity and price efficiency, we believe that such
costs are justified by the benefits provided by the Rule in preventing
short selling, including potentially manipulative or abusive short
selling, from being used as a tool to exacerbate a declining market in
a security.
---------------------------------------------------------------------------

    \828\ See supra Section III.A.5. (discussing the circuit breaker
trigger level and duration).
    \829\ See Staff's Summary Pilot Report at 55 and supporting
text; see also Karl B. Diether, Kuan Hui Lee and Ingrid M. Werner,
2009, It's SHO Time! Short-Sale Price-Tests and Market Quality,
Journal of Finance 64:37.
    \830\ See supra note 54.
    \831\ See J. Julie Wu, Uptick Rule, short selling and price
efficiency, Aug. 14, 2006.
    \832\ See Lynn Bai, 2008, The Uptick Rule of Short Sale
Regulation--Can it Alleviate Downward Price Pressure from Negative
Earnings Shocks? Rutgers Business Law Journal 5:1-63.
    \833\ See, e g., supra note 242 and accompanying text
(discussing automated trade matching systems).
    \834\ See supra Section III.A.5. (discussing the circuit breaker
trigger level and duration).
---------------------------------------------------------------------------

    In addition, commenters stated that a short sale price test
restriction in general, or the alternative uptick rule specifically,
might negatively impact various trading strategies that include short
selling,\835\ such as high frequency

trading,\836\ options valuation models that are used to value and hedge
equity derivatives transactions,\837\ market neutral trading strategies
or those that rely on hedging,\838\ convertible arbitrage,\839\
statistical arbitrage,\840\ program or portfolio trading baskets,\841\
and hedging strategies that significantly contribute to market
liquidity, such as computerized liquidity providers or ``virtual market
makers.'' \842\ Commenters noted what they believe would be the
negative consequences of such an impact, including increasing bid-ask
spreads, reducing market volume,\843\ reducing market liquidity,\844\
reducing market efficiency,\845\ complicating the raising of capital by
corporate issuers,\846\ and causing investors to exit the market.\847\
Other commenters expressed the belief that restrictions on short
selling might encourage the use of other trading strategies that
largely mirror the benefits of short selling (such as sales of calls,
purchase of puts, synthetic short sales of OTC derivatives, and sales
of security futures), but that impose additional costs, such as reduced
efficiency or inaccessibility to small investors.\848\
---------------------------------------------------------------------------

    \835\ See, e.g., letter from Citadel et al. (June 2009); letter
from Credit Suisse (June 2009); letter from ISDA; letter from RBC
(June 2009); letter from STA (June 2009); letter from Vanguard (June
2009); letter from EWT (Sept. 2009); letter from TD Asset
Management; letter from Lime Brokerage (Sept. 2009); letter from
Bingham McCutchen; letter from MFA (Oct. 2009); see also letter from
Credit Suisse (Mar. 2009).
    \836\ See, e.g., letter from Bingham McCutchen.
    \837\ See, e.g., letter from ISDA.
    \838\ See, e.g., letter from Citadel et al. (June 2009); letter
from Credit Suisse (June 2009); letter from EWT (Sept. 2009); letter
from TD Asset Management; letter from MFA (Oct. 2009). This category
includes such trading methods as long short equity strategies,
convertible securities investors, and hedged strategies such as 130/
30 portfolios. See id.
    \839\ See, e.g., letter from Citadel et al. (June 2009); letter
from Credit Suisse (June 2009); letter from Goldman Sachs (June
2009); letter from SIFMA (June 2009).
    \840\ See, e.g., letter from Citadel et al. (June 2009).
    \841\ See letter from TD Asset Management.
    \842\ See, e.g., letter from Lime Brokerage (June 2009); letter
from Lime Brokerage (Sept. 2009).
    \843\ See, e.g., letter from Citadel et al. (June 2009); letter
from Lime Brokerage (Sept. 2009); letter from Bingham McCutchen;
letter from Credit Suisse (June 2009).
    \844\ See, e.g., letter from Chad Stogel; letter from Citadel et
al. (June 2009); letter from Lime Brokerage (June 2009); letter from
STA (June 2009); letter from EWT (Sept. 2009); letter from BATS
(Sept. 2009); letter from Citadel et al. (Sept. 2009); letter from
Lime Brokerage (Sept. 2009); letter from STA (Sept. 2009); letter
from Bingham McCutchen.
    \845\ See e.g., letter from Citadel et al. (June 2009); letter
from Citadel et al. (Sept. 2009).
    \846\ See, e.g., letter from Citadel et al. (June 2009); letter
from Credit Suisse (June 2009); letter from Goldman Sachs (June
2009); letter from SIFMA (June 2009).
    \847\ See, e.g., letter from Credit Suisse (June 2009).
    \848\ See, e.g., letter from Prof. Rosenthal; letter from
Barclays (June 2009) (warning that a mere transfer of short selling
activity to other types of markets would impair the price discovery,
efficiency, safety, and soundness of the public equity markets);
letter from STA (June 2009) (discussing a possible shift to the
derivative markets); letter from RBC (June 2009) (discussing sales
of calls, purchases of puts, and short selling of security futures
as methods to bypass the price restrictions); letter from Vanguard
(June 2009) (discussing the use of synthetic short sales through OTC
derivatives); see also supra Section III.A.1. (discussing the
creation of ``synthetic'' short positions that are the economic
equivalent of a short sale through the use of derivative
securities).
---------------------------------------------------------------------------

    To the extent that Rule 201 may have a negative effect on various
trading strategies that include short selling, we believe any such
negative effect will be limited. Under Rule 201, although short selling
will be restricted for a limited time by the alternative uptick rule if
the price of a covered security decreases by 10% or more, unlike with
securities subject to the Short Sale Ban Emergency Order, Rule 201 will
permit short selling at a price above the current national best bid in
the covered security even when the restriction is in place. Thus, short
sellers engaged in various trading strategies that include short
selling will generally continue to be able to sell short for the
limited period of time when the short sale price test restriction is in
effect. In addition, we note that many of the above comments on
potential market-wide impacts of a short sale price test restriction on
various trading strategies that include short selling were not specific
to a short sale price test applied in conjunction with a circuit
breaker.\849\ Under the circuit breaker approach, the alternative
uptick rule will only be imposed when a covered security has
experienced an intra-day price decline of 10% or more and will only
apply for the remainder of the day and the following day.\850\ We
believe that the negative impact of Rule 201, if any, on various
trading strategies that include short selling will be limited because
of the limited scope and duration of Rule 201. To the extent that Rule
201 has a negative impact on various trading strategies that include
short selling, we believe that such costs are justified by the benefits
provided by the Rule in preventing short selling, including potentially
manipulative or abusive short selling, from being used as a tool to
exacerbate a declining market in a security.
---------------------------------------------------------------------------

    \849\ See, e.g., letter from Bingham McCutchen; letter from
ISDA; letter from TD Asset Management; letter from EWT (Sept. 2009);
letter from Lime Brokerage (Sept. 2009); letter from Citadel et al.
(Sept. 2009); letter from STA (Sept. 2009); letter from BATS (Sept.
2009); letter from MFA (Oct. 2009).
    \850\ See supra Section III.A.5. (discussing the circuit breaker
trigger level and duration).
---------------------------------------------------------------------------

    We recognize that imposing a short sale price test restriction with
respect to NMS stocks, without a similar restriction on derivative
securities, could increase the use of derivative securities to create a
short position and that such ``synthetic'' short positions could
increase as a result of Rule 201. As discussed in Section III.A.1.,
above, however, short sales in the equity markets to hedge derivatives
transactions are subject to Rule 201. In addition, we remain concerned
that the ability to create a short position through the use of
derivative securities may undermine the goals of short sale price test
restrictions. At a later time, we may reconsider whether additional
regulation of derivative securities and the use of ``synthetic'' short
positions may be appropriate.
    Several commenters discussed how constraints on short selling might
harm price discovery and pricing efficiency.\851\ Commenters stated
that, under the alternative uptick rule, only long sellers could hit
bids displayed as part of the national market system, which would
result in long sellers exclusively dictating the market price of
purchases, which would harm price discovery.\852\ Additionally,
commenters stated that the alternative uptick rule would restrict the
informational content that short sale orders contain to only passive
orders, meaning that the information would not be fully communicated in
the price discovery process and pricing inefficiency would arise.\853\
Other commenters stated that the alternative uptick rule might result
in an inflated transaction price \854\ or upward stock price
manipulation.\855\
---------------------------------------------------------------------------

    \851\ See, e.g., letter from Matlock Capital (May 2009); letter
from Prof. Rosenthal; letter from Goldman Sachs (June 2009); Autore,
Billingsley, and Kovacs, Short Sale Constraints, Dispersion of
Opinion, and Market Quality: Evidence from the Short Sale Ban on
U.S. Financial Stocks (June 19, 2009); letter from GETCO (June
2009); letter from STA (June 2009); letter from Allston Trading
(Sept. 2009); letter from Bingham McCutchen; letter from Citadel et
al. (Sept. 2009); letter from CPIC (Sept. 2009); letter from
Dialectic Capital (Sept. 2009); letter from EWT (Sept. 2009); letter
from Hudson River Trading; letter from STA (Sept. 2009); letter from
TD Asset Management.
    \852\ See, e.g., letter from Citadel et al. (Sept. 2009); letter
from Dialectic Capital (Sept. 2009); letter from Bingham McCutchen;
see also letter from GETCO (June 2009); letter from Charles A.
Trzcinka, Professor of Finance and Chairman of the Finance
Department, Kelly School of Business, Indiana University, dated May
10, 2009; letter from Prof. Rosenthal; Autore, Billingsley, and
Kovacs, Short Sale Constraints, Dispersion of Opinion, and Market
Quality: Evidence from the Short Sale Ban on U.S. Financial Stocks
(June 19, 2009).
    \853\ See, e.g., letter from TD Asset Management; letter from
CPIC (Sept. 2009); see also letter from GETCO (June 2009); letter
from Goldman Sachs (June 2009).
    \854\ See, e.g., letter from Allston Trading (Sept. 2009);
letter from Citadel et al. (Sept. 2009); letter from CPIC (Sept.
2009); letter from Dialectic Capital (Sept. 2009); letter from EWT
(Sept. 2009); letter from Hudson River Trading; letter from STA
(Sept. 2009).
    \855\ See, e.g., letter from Allston Trading (Sept. 2009);
letter from Citadel et al. (Sept. 2009); letter from RBC (Sept.
2009); see also letter from AIMA; letter from Citadel et al. (June
2009); letter from Goldman Sachs (June 2009); letter from RBC (June
2009).

---------------------------------------------------------------------------

    We believe that Rule 201 will have a limited negative effect on
price discovery and price efficiency. As discussed above, the Pilot
Results \856\ found that the Pilot data provided limited evidence that
the former tick test of Rule 10a-1(a) and former bid test of NASD,
which were permanent, market-wide short sale price tests, distorted a
security's price. In addition, one study concluded that former Rule
10a-1 had little or no effect on price efficiency.\857\ Another study
found no evidence that former Rule 10a-1 negatively impacted price
discovery.\858\ Due to differences in the operation of former Rule 10a-
1 and Rule 201, when it applies, the alternative uptick rule under Rule
201 will be more restrictive than former Rule 10a-1 in some
circumstances and less restrictive in others.\859\ As discussed above,
however, due to the circuit breaker approach in Rule 201, the
alternative uptick rule of Rule 201 generally will apply to a limited
number of covered securities \860\ and will apply only when the circuit
breaker has been triggered for a covered security. As such, it will not
be triggered for the majority of covered securities at any given time
and, when triggered, will remain in effect for a short duration--that
day and the following day. Considering the empirical studies and the
comments and because of the limited scope and duration of Rule 201, we
believe that Rule 201 will have little, if any, negative effect on
price discovery and price efficiency. To the extent that Rule 201
negatively affects price discovery and price efficiency, we believe
that such costs are justified by the benefits provided by the Rule in
preventing short selling, including potentially manipulative or abusive
short selling, from being used as a tool to exacerbate a declining
market in a security.
---------------------------------------------------------------------------

    \856\ See Staff's Summary Pilot Report at 55; Karl B. Diether,
Kuan Hui Lee and Ingrid M. Werner, 2009, It's SHO Time! Short-Sale
Price-Tests and Market Quality, Journal of Finance 64:37-73; Gordon
J. Alexander and Mark A. Peterson, 2008, The Effect of Price Tests
on Trader Behavior and Market Quality: An Analysis of Reg. SHO,
Journal of Financial Markets 11:84-111; J. Julie Wu, Uptick Rule,
short selling and price efficiency, Aug. 14, 2006; Lynn Bai, 2008,
The Uptick Rule of Short Sale Regulation--Can it Alleviate Downward
Price Pressure from Negative Earnings Shocks? Rutgers Business Law
Journal 5:1-63.
    \857\ See J. Julie Wu, Uptick Rule, short selling and price
efficiency, Aug. 14, 2006.
    \858\ See Lynn Bai, 2008, The Uptick Rule of Short Sale
Regulation--Can it Alleviate Downward Price Pressure from Negative
Earnings Shocks? Rutgers Business Law Journal 5:1-63.
    \859\ See, e g., supra note 242 and accompanying text
(discussing automated trade matching systems).
    \860\ See supra notes 305 to 311 and accompanying text
(discussing data reflecting that, on average, a limited number of
covered securities would hit a 10% trigger level each day).
---------------------------------------------------------------------------

    A number of commenters discussed the impact that the alternative
uptick rule might have on execution.\861\ Several commenters stated
that, under the alternative uptick rule, short sales would be
ineligible for immediate execution, causing increased trading costs and
opportunity costs, decreased liquidity, and widened spreads.\862\
Commenters also stated that the alternative uptick rule would increase
the risk of non-execution of a short sale, which would reduce the speed
of price discovery and increase execution prices.\863\ Commenters also
noted that the alternative uptick rule could cause missed execution
opportunities, thereby causing retail investors to pay artificially
high prices to obtain execution.\864\
---------------------------------------------------------------------------

    \861\ See, e.g., letter from Citadel et al. (Sept. 2009); letter
from Group One Trading (Sept. 2009); letter from TD Asset
Management; letter from CPIC (Sept. 2009); letter from Lime
Brokerage (Sept. 2009); letter from RBC (Sept. 2009); letter from
SIFMA (Sept. 2009); letter from STA (Sept. 2009); letter from
Barclays (Sept. 2009).
    \862\ See, e.g., letter from Citadel et al. (Sept. 2009); letter
from TD Asset Management; letter from CPIC (Sept. 2009); letter from
STA (Sept. 2009). As noted by some commenters, however, there may be
situations in which a short seller could get immediate execution,
such as where an order is executed in a facility that provides
executions at the mid-point of the national best bid and offer. See,
e.g., letter from ISE (Sept. 2009); see also letter from BATS (Sept.
2009).
    \863\ See, e.g., letter from Barclays (Sept. 2009); letter from
STA (Sept. 2009).
    \864\ See, e.g., letter from Allston Trading (Sept. 2009);
letter from Citadel et al. (Sept. 2009); letter from Dialectic
Capital (Sept. 2009); see also letter from Chad Stogel.
---------------------------------------------------------------------------

    As we stated in the Re-Opening Release, because the alternative
uptick rule will only permit short selling at a price above the current
national best bid, the alternative uptick rule will generally not allow
short sales to get immediate execution, even in an advancing
market,\865\ which may slow the speed of executions and impose
additional costs on market participants, including buyers.\866\ We
note, however, that the above comments on the potential impacts of the
alternative uptick rule on execution were not specific to a short sale
price test in conjunction with a circuit breaker.\867\ Under the
circuit breaker approach, the alternative uptick rule will only be
imposed when a covered security has experienced an intra-day price
decline of 10% or more and will only apply for the remainder of the day
and the following day.\868\ We believe that the negative impact of Rule
201, if any, on execution speed and probability will be limited because
of the limited scope and duration of Rule 201. To the extent that Rule
201 negatively impacts execution speed and probability, we believe that
such costs are justified by the benefits provided by the Rule in
preventing short selling, including potentially manipulative or abusive
short selling, from being used as a tool to exacerbate a declining
market in a security.
---------------------------------------------------------------------------

    \865\ See Re-Opening Release, 74 FR at 42034; see also supra
note 227 (noting that under some circumstances a short seller may be
able to get immediate execution).
    \866\ See supra note 52 (discussing returns for listed Pilot
securities and listed control group securities during the first six
months of the Pilot and referencing Staff's Summary Pilot Report at
8).
    \867\ See, e.g., letter from Allston Trading (Sept. 2009);
letter from Barclays (Sept. 2009); letter from Citadel et al. (Sept.
2009); letter from Dialectic Capital (Sept. 2009); letter from TD
Asset Management; letter from CPIC (Sept. 2009); letter from STA
(Sept. 2009).
    \868\ See supra Section III.A.5. (discussing the circuit breaker
trigger level and duration).
---------------------------------------------------------------------------

    Several commenters suggested that short sellers who remain in the
markets, as well as other market participants, might change their
trading behavior in response to a short sale price test
restriction.\869\ For example, commenters expressed the belief that
other traders might use computer algorithms to identify the presence of
short sellers who have sell orders exactly one increment above the bid
and quickly adjust their bid price downward in anticipation of the
stock price dropping, which would result in the price of the security
declining even further overall.\870\ Similarly, several commenters
stated that short sale limit orders might be perceived by other market
participants as a negative view on a covered security, which might have
negative implications on market efficiency, market liquidity, and bid-
ask spreads and might cause buyers to withdraw their bids.\871\ One
commenter noted that displayed short sale limit orders could be
``subject to the risk that long sellers would use the information in
the orders to their advantage and front-run or pick off the orders.''
\872\ Additionally, commenters stated that short sellers who seek to
execute above the best bid without displaying the offer would be driven
to transact in market centers that do not display their better-priced
bids as part of the national

market system, such as dark pools, or through broker-dealers that offer
internalization.\873\ Commenters noted that such an increase in volume
directed to non-public markets would decrease overall market
transparency, liquidity, and pricing efficiency.\874\
---------------------------------------------------------------------------

    \869\ See, e.g., letter from STA (May 2009); letter from Group
One Trading (Sept. 2009); letter from Lime Brokerage (Sept. 2009).
    \870\ See letter from Group One Trading (Sept. 2009); letter
from STANY (Sept. 2009).
    \871\ See, e.g., letter from Barclays (Sept. 2009); letter from
MFA (Oct. 2009); see also letter from STA (Sept. 2009) (stating that
because short sale orders would have to be priced one increment
above the national best bid, and would drop in price as bids were
exhausted, the alternative uptick rule ``would also prolong and
deepen downward moves by forcing there to be overhanging, passive
supply'').
    \872\ Letter from Citadel et al. (Sept. 2009).
    \873\ See, e.g., letter from EWT (Sept. 2009); letter from Group
One Trading (Sept. 2009); letter from STANY (Sept. 2009).
    \874\ See id.; see also letter from STA (May 2009).
---------------------------------------------------------------------------

    Although we recognize that short sellers who remain in the markets,
as well as other market participants, might change their trading
behavior in response to a short sale price test restriction, we believe
any such effect will be limited by the circuit breaker approach of Rule
201. Under the circuit breaker approach, the alternative uptick rule
will only be imposed when a covered security has experienced an intra-
day price decline of 10% or more and will only apply for the remainder
of the day and the following day.\875\ To the extent that Rule 201
results in changes in trading behavior, we believe that such an impact
is justified by the benefits provided by the Rule in preventing short
selling, including potentially manipulative or abusive short selling,
from being used as a tool to exacerbate a declining market in a
security.
---------------------------------------------------------------------------

    \875\ See supra Section III.A.5. (discussing the circuit breaker
trigger level and duration).
---------------------------------------------------------------------------

    In addition, we note that, as discussed in Section II.D., above, we
reviewed the empirical analyses that commenters submitted to us or
discussed in their comments. Consistent with the Pilot Results, a study
of the effect that rescission of former Rule 10a-1 had on market
quality found that the elimination had no measurable effect on market
volatility,\876\ while the results of other studies on the effect of
the lack of a short sale price test restriction on volatility were
mixed.\877\ However, we note that the study showing no measurable
effect on market volatility only analyzed daily volatility during a
six-week period following the elimination of former Rule 10a-1 and,
thus, may have limited statistical significance. In addition, the
studies evidencing an increase in volatility do not address the extent
to which other factors may have contributed to or caused the increased
volatility.
---------------------------------------------------------------------------

    \876\ See Ekkehart Boehmer, Charles M. Jones, and Xiaoyan Zhang,
Unshackling Short Sellers: The Repeal of the Uptick Rule (Nov.
2008).
    \877\ See, e.g., letter from NAREIT; letter from High Street
Advisors; letter from European Investors (Sept. 2009).
---------------------------------------------------------------------------

    Studies of other aspects of market quality suggest little
measurable impact of a short sale price test restriction on price
discovery, market efficiency, liquidity or market quality in
general.\878\ Several commenters cited empirical evidence showing that
restrictions on short selling, particularly bans on short selling, may
impede liquidity, price discovery, and market efficiency,\879\ but the
cited studies do not address the effects of a short sale price test
restriction in general or Rule 201 in particular. The empirical
analyses that commenters submitted on whether a short sale price test
restriction dampens price pressure from short sellers are mixed, but
generally focus on long time horizons, such as weeks or months, as
opposed to short time horizons, such as seconds or minutes, which are
more relevant to the impact of a short sale price test restriction on
price pressure.\880\
---------------------------------------------------------------------------

    \878\ See, e.g., the Pilot Results; see also supra note 856 and
accompanying text. Numerous commenters also sent analyses on short
selling restrictions in general or on the short selling ban. See,
e.g., letter from AIMA; letter Allston Trading (June 2009); Autore,
Billingsley, and Kovacs, Short Sale Constraints, Dispersion of
Opinion, and Market Quality: Evidence from the Short Sale Ban on
U.S. Financial Stocks (June 19, 2009); letter from BATS (May 2009);
letter from CBOE (June 2009); letter from Citadel et al. (June
2009); letter from Credit Suisse (June 2009), letter from CPIC (June
2009); letter from GETCO (June 2009); letter from Goldman Sachs
(Sept. 2009); letter from Hudson River Trading; letter from ICI
(June 2009); letter from NSCP; letter from NYSE Euronext (June
2009); letter from TD Asset Management; letter from STANY (June
2009); letter from Wolverine.
    \879\ See supra note 128.
    \880\ See, e.g., J. Julie Wu, Uptick Rule, short selling and
price efficiency, Aug. 14, 2006.
---------------------------------------------------------------------------

    In summary, after considering the empirical evidence and the
comments that we received in response to the Proposal and the Re-
Opening Release, we believe that Rule 201 will have a minimal, if any,
negative effect on market liquidity, price efficiency, and quote
depths.\881\ In addition, we recognize that there will be market costs
associated with Rule 201 in terms of the potential impact of such a
short sale-related circuit breaker on execution speed and probability.
Such costs may increase the costs of legitimate short selling. To the
extent that Rule 201 results in increased costs for short selling in
covered securities, it may increase the trading costs of legitimate
short selling for these securities and may result in a reduction in
short selling generally. Restricting short selling may also reduce
``long'' activity where the short selling is part of a larger trading
strategy. As discussed above, we believe that these costs will be
limited because of the circuit breaker approach of Rule 201.
---------------------------------------------------------------------------

    \881\ See supra note 878 (citing empirical evidence showing that
former Rule 10a-1 did not have an effect on market liquidity and
price efficiency and that price test restrictions resulted in an
increase in quote depths). We note that, although the alternative
uptick rule is by definition more restrictive than the proposed
modified uptick rule, differences between the operation of the
proposed uptick rule and the alternative uptick rule mean that one
approach or the other would be more restrictive in particular
circumstances. See, e. g., supra note 242 and accompanying text
(discussing automated trade matching systems).
---------------------------------------------------------------------------

    We believe that the potential costs of Rule 201 are justified by
its design, such that, when Rule 201 is triggered, it will allow long
sellers, by selling at the bid, to sell first, ahead of short sellers,
in a declining market for a particular security. As the Commission has
noted previously in connection with short sale price test restrictions,
a goal of such restrictions is to allow long sellers to sell first in a
declining market.\882\ A short seller that is seeking to profit quickly
from accelerated, downward market moves may find it advantageous to be
able to short sell at the current national best bid. In addition, by
making bids accessible only by long sellers when a security's price is
undergoing significant downward price pressure, Rule 201 will help to
facilitate and maintain stability in the markets and help ensure that
they function efficiently. It will also help restore investor
confidence during times of substantial uncertainty because, once the
circuit breaker has been triggered for a particular security, long
sellers will have preferred access to bids for the security, and the
security's continued price decline will more likely be due to long
selling and the underlying fundamentals of the issuer, rather than to
other factors. In addition, combining the alternative uptick rule with
a circuit breaker strikes the appropriate balance between our goal of
preventing short selling, including potentially manipulative or abusive
short selling, from being used as a tool to exacerbate a declining
market in a security and the need to allow for the continued smooth
functioning of the markets, including the provision of liquidity and
price efficiency in the markets.
---------------------------------------------------------------------------

    \882\ See supra note 17.
---------------------------------------------------------------------------

    In addition, we believe several of the provisions contained in
paragraph (d) of Rule 201 will help to mitigate any potential price
distortions or costs associated with Rule 201. These provisions are
designed to help promote the workability of Rule 201, while at the same
time furthering our goals for adopting short sale price test
regulation.
    As discussed above,\883\ we are adopting the seller's delay in
delivery exception under Rule 201(d)(1) to allow sale orders of owned
but restricted

securities to be displayed or executed at a price that is less than or
equal to the current national best bid, thereby mitigating the negative
impact of Rule 201, if any, on execution speed and probability and
helping to promote the workability of Rule 201.
---------------------------------------------------------------------------

    \883\ See supra Section III.B.2. (discussing the ``short
exempt'' provision for seller's delay in delivery).
---------------------------------------------------------------------------

    Rule 201(d)(2) allows a broker-dealer to mark a short sale order as
``short exempt'' if the broker-dealer has a reasonable basis to believe
that the short sale order is by a market maker to off-set a customer
odd-lot order or liquidate an odd-lot position which changes such
broker-dealer's position by no more than a unit of trading.\884\ We
believe that the odd-lot exception will promote the workability of Rule
201 and help mitigate potential price distortions or costs associated
with the Rule, if any, because it will allow those acting in the
capacity of a ``market maker'' to off-set customer odd-lot orders
without regard to whether the sale order is at a price that is less
than or equal to the current national best bid, thereby facilitating
the liquidity providing function of market makers.
---------------------------------------------------------------------------

    \884\ See supra Section III.B.3. (discussing the ``short
exempt'' provision for odd lot transactions).
---------------------------------------------------------------------------

    Rule 201(d)(3) permits a broker-dealer to mark as ``short exempt''
short sale orders associated with certain bona fide domestic arbitrage
transactions.\885\ Moreover, to facilitate arbitrage transactions in
which a short position is taken in a security in the U.S. markets, and
which is to be immediately covered on a foreign market, Rule 201(d)(4)
permits a broker-dealer to mark as ``short exempt'' short sale orders
associated with certain international arbitrage transactions.\886\
Because domestic arbitrage and international arbitrage transactions
promote market efficiency by equalizing prices at an instant in time in
different markets or between relatively equivalent securities,\887\ we
believe these provisions will help mitigate the negative effect of Rule
201, if any, on market and pricing efficiency and help to promote the
workability of Rule 201.
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    \885\ See supra Section III.B.4. (discussing the ``short
exempt'' provision for domestic arbitrage transactions).
    \886\ See supra Section III.B.5. (discussing the ``short
exempt'' provision for international arbitrage transactions).
    \887\ See supra Sections III.B.4. and III.B.5. (discussing the
benefits of bona fide arbitrage activities to market efficiency
because they tend to reduce pricing disparities between related
securities).
---------------------------------------------------------------------------

    Rule 201(d)(5) permits a broker-dealer to mark as ``short exempt''
short sale orders by underwriters or syndicate members participating in
a distribution in connection with an over-allotment, and any short sale
orders for purposes of lay-off sales by such persons in connection with
a distribution of securities through a rights or standby underwriting
commitment.\888\ We are including a ``short exempt'' marking provision
for syndicate and lay-off sales because, as discussed above, we have
historically excepted such activity from short sale rules.\889\ In
addition, we note that the public offering process is key to capital
formation. By facilitating price support during the offering process,
Rule 201(d)(5) will mitigate the negative effects of Rule 201, if any,
on capital formation.
---------------------------------------------------------------------------

    \888\ See supra Section III.B.6. (discussing the ``short
exempt'' provision for over-allotments and lay-off sales).
    \889\ See id.
---------------------------------------------------------------------------

    Rule 201(d)(6) allows a broker-dealer to mark as ``short exempt''
short sale orders where broker-dealers are facilitating customer buy
orders or sell orders where the customer is net long, and the broker-
dealer is net short but is effecting the sale as riskless
principal.\890\ We believe that the riskless principal exception of
Rule 201(d)(6) will facilitate broker-dealers' ability to provide best
execution to certain customer orders, thus mitigating the negative
impact of Rule 201, if any, on execution speed and probability and
helping to promote the workability of Rule 201.
---------------------------------------------------------------------------

    \890\ See supra Section III.B.7. (discussing the ``short
exempt'' provision for riskless principal transactions).
---------------------------------------------------------------------------

    Rule 201(d)(7) permits a broker-dealer to mark as ``short exempt''
certain short sale orders executed on a VWAP basis.\891\ We believe
that the exception for VWAP short sale transactions will provide an
additional source of liquidity for investors' VWAP orders and will help
enable investors to achieve their objective of obtaining an execution
at the VWAP, thus mitigating the negative impact of Rule 201, if any,
on liquidity and execution speed and probability and helping to promote
the workability of Rule 201.
---------------------------------------------------------------------------

    \891\ See supra Section III.B.8. (discussing the ``short
exempt'' provision for transactions on a volume weighted average
price basis).
---------------------------------------------------------------------------

b. Implementation and On-Going Monitoring and Surveillance Costs
i. Policies and Procedures Requirement Under Rule 201
    Rule 201 requires a trading center to have written policies and
procedures reasonably designed to prevent the execution or display of a
short sale order of a covered security at a price that is less than or
equal to the current national best bid if the price of that covered
security decreases by 10% or more from the covered security's closing
price as determined by the listing market for the covered security as
of the end of regular trading hours on the prior day.\892\ In addition,
the Rule requires that the trading center establish, maintain, and
enforce written policies and procedures reasonably designed to impose
this short sale price test restriction for the remainder of the day and
the following day when a national best bid for the covered security is
calculated and disseminated on a current and continuing basis by a plan
processor pursuant to an effective national market system plan.\893\ In
addition, trading centers are required to regularly surveil to
ascertain the effectiveness of the policies and procedures required
under the Rule and to take prompt action to remedy deficiencies in such
policies and procedures.\894\
---------------------------------------------------------------------------

    \892\ See Rule 201(b)(1)(i).
    \893\ See Rule 201(b)(1)(ii).
    \894\ See Rule 201(b)(2).
---------------------------------------------------------------------------

    As stated previously, we discussed in the Proposal the anticipated
costs of the proposed short sale price test restrictions and, in the
Proposal and Re-Opening Release, we requested comment on the costs
associated with the proposed amendments.\895\ In particular, we
requested comment on the potential costs for any modification to both
computer systems and surveillance mechanisms and for information
gathering, management, and recordkeeping systems or procedures.\896\
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    \895\ See Proposal, 74 FR at 18090, 18092-18103; Re-Opening
Release, 74 FR at 42037.
    \896\ See Proposal, 74 FR at 18090.
---------------------------------------------------------------------------

    A number of commenters expressed concerns that the costs of
implementing a short sale price test restriction would be
significant.\897\ However, many of these comments were not specific to
the alternative uptick rule.\898\ While some commenters discussed the
potential implementation costs of the alternative uptick rule, they did
not provide specific estimates of such costs.\899\ Most commenters
compared estimated implementation costs of the alternative uptick rule
to the other proposed rules.\900\
---------------------------------------------------------------------------

    \897\ See, e.g., letter from NSCP; letter from STANY (June
2009); letter from RBC (June 2009); letter from Wolverine; letter
from CPIC (Sept. 2009); letter from EWT (Sept. 2009); letter from
RBC (Sept. 2009); letter from STA (Sept. 2009).
    \898\ See, e.g., letter from NSCP; letter from STANY (June
2009); letter from RBC (June 2009); letter from Wolverine.
    \899\ See, e.g., letter from CPIC (Sept. 2009); letter from EWT
(Sept. 2009); letter from RBC (Sept. 2009); letter from STA (Sept.
2009).
    \900\ See, e.g., letter from EWT (Sept. 2009) (stating that the
net savings of the alternative uptick rule to the broader industry
compared to the other proposals would at best be minimal); letter
from STA (Sept. 2009); letter from BATS (Sept. 2009); letter from
Goldman Sachs (Sept. 2009); letter from Wells Fargo (Sept. 2009);
letter from SIFMA (Sept. 2009); letter from ICI (Sept. 2009); letter
from Credit Suisse (Sept. 2009).

---------------------------------------------------------------------------

    As discussed in the PRA section above, we believe that the
implementation and on-going monitoring and surveillance costs of the
alternative uptick rule will be lower than the implementation and on-
going monitoring and surveillance costs that would be associated with
adoption of the proposed modified uptick rule or the proposed uptick
rule.\901\ Unlike the proposed modified uptick rule and the proposed
uptick rule, which would have required sequencing of the national best
bid or last sale price (i.e., whether the current national best bid or
last sale price is above or below the previous national best bid or
last sale price), the alternative uptick rule references only the
current national best bid. In addition, we believe that the
implementation and on-going monitoring and surveillance costs of the
alternative uptick rule are justified by the benefits provided by
preventing short selling, including potentially manipulative or abusive
short selling, from being used as a tool to exacerbate a declining
market in a security.
---------------------------------------------------------------------------

    \901\ See supra Section IX.E.1. (discussing estimated burdens on
trading centers of the collection of information requirements in
connection with Rule 201).
---------------------------------------------------------------------------

    A number of commenters stated that because the alternative uptick
rule would not require monitoring of the sequence of bids or last sale
prices, implementing the alternative uptick rule would be less costly
\902\ or easier than implementing the proposed modified uptick rule or
the proposed uptick rule.\903\ In addition, several commenters stated
that the alternative uptick rule would be easier to program into
trading and surveillance systems than the proposed modified uptick rule
or the proposed uptick rule.\904\ Another commenter stated, with
respect to the alternative uptick rule, that ``actual implementation
costs in terms of time and capital expenditure would be negligible when
compared to those involved in implementing either the uptick rule or
modified uptick rule.'' \905\
---------------------------------------------------------------------------

    \902\ See, e.g., letter from BATS (May 2009); letter from BATS
(Sept. 2009); letter from GETCO (Sept. 2009); letter from ICI (Sept.
2009); letter from Glen Shipway (Sept. 2009). In addition, several
commenters acknowledged that implementation of the alternative
uptick rule will likely be less costly, without referencing the
sequencing issue. See, e.g., letter from STANY (Sept. 2009).
    \903\ See, e.g., letter from Glen Shipway (Sept. 2009); letter
from SIFMA (Sept. 2009); letter from STA (Sept. 2009); see also
letter from Credit Suisse (June 2009). In addition, one commenter
acknowledged that implementation of the alternative uptick rule will
likely be easier, without referencing the sequencing issue. See
letter from Allston Trading (Sept. 2009).
    \904\ See, e.g., letter from BATS (May 2009); letter from Glen
Shipway (Sept. 2009); letter from ICI (Sept. 2009); see also letter
from National Stock Exchange et al.
    \905\ Letter from BATS (Sept. 2009).
---------------------------------------------------------------------------

    Several commenters indicated that implementation of the alternative
uptick rule would not be easier or less costly than implementation of
the proposed modified uptick rule or the proposed uptick rule.\906\
However, we note that some of these commenters presented concerns that
were not directly related to the alternative uptick rule \907\ or to
implementation costs or difficulties.\908\ Additionally, one commenter
did not provide the reasoning for its belief that the alternative
uptick rule would not be easier or less costly to implement.\909\
---------------------------------------------------------------------------

    \906\ See, e.g., letter from Matlock Capital (Sept. 2009);
letter from NYSE Euronext (Sept. 2009); letter from Knight Capital
(Sept. 2009).
    \907\ See, e.g., letter from NYSE Euronext (Sept. 2009) (stating
that implementation of the alternative uptick rule would be more
difficult on the basis that the alternative uptick rule would be
paired with a circuit breaker and attributing implementation
difficulties to the circuit breaker approach, not the alternative
uptick rule).
    \908\ See, e.g., letter from Knight Capital (Sept. 2009)
(characterizing a potential increase in friction, confusion, or
inefficiency in the market as an implementation difficulty that may
arise from the alternative uptick rule).
    \909\ See letter from Matlock Capital (Sept. 2009).
---------------------------------------------------------------------------

    Several commenters indicated their belief that other commenters'
estimates regarding the difficulty or costs of implementing and
monitoring the proposed modified uptick rule and the proposed uptick
rule were exaggerated.\910\ We recognize that some commenters'
estimates of the costs of the proposed modified uptick rule or the
proposed uptick rule may have been conservative. We also believe that
because the alternative uptick rule does not include a sequencing
requirement, the implementation and on-going monitoring and
surveillance costs of the alternative uptick rule will be less than
such costs would be with respect to the other proposed short sale price
test restrictions.
---------------------------------------------------------------------------

    \910\ See, e.g., letter from Matlock Capital (Sept. 2009);
letter from ISE (Sept. 2009); letter from Bingham McCutchen.
---------------------------------------------------------------------------

    One commenter stated that the Commission ``underestimate[s] the
time and expense that will be required for market participants to
comply with the [alternative uptick] rule (or any other of the proposed
alternatives)'' and that such costs ``will include expenses * * * for
the initial implementation of any restriction.'' \911\ However, this
commenter did not specify why or how the implementation cost of the
alternative uptick rule may be greater than we estimated.\912\
---------------------------------------------------------------------------

    \911\ Letter from RBC (Sept. 2009).
    \912\ In addition, with respect to the commenter's concern that
we underestimated the time required for implementation, we note
that, as discussed in Section VII., above, we believe that a six
month implementation period is appropriate. This implementation
period, which is longer than the implementation periods proposed in
the Proposal and the Re-Opening Release, takes into consideration
commenters' concerns that implementation of a price test could be
complex. We do not believe that a longer implementation time is
warranted because, for example, Rule 201 does not require monitoring
of the sequence of bids or last sale prices, unlike other proposed
price tests, and because Rule 201 requires the implementation of
policies and procedures similar to those required for trading
centers under Regulation NMS.
---------------------------------------------------------------------------

    One commenter indicated that implementation costs would be
approximately $500,000 per firm, for a total of $191,000,000 for all
non-SRO trading centers subject to Rule 201,\913\ including costs for
``the purchase of additional costly data feeds'' but not including
``costs associated with developing appropriate internal supervisory
procedures and compliance programs.'' \914\ The implementation cost
estimates provided by this commenter, which are significantly higher
than our estimate of, on average, $68,381 per non-SRO trading
center,\915\ were not specific to the alternative uptick rule. Because
the alternative uptick rule references only the current national best
bid, unlike the proposed modified uptick rule and the proposed uptick
rule, which would have required sequencing of the national best bid or
last sale price, we believe that the alternative uptick rule will be
easier and less costly to implement and monitor than the proposed
modified uptick rule or the proposed uptick rule.\916\ In addition, we
note that implementation of Rule 201 will not require modifications to
how data feeds are currently received. As discussed above, Rule 201
does not mandate that the receipt of the current national best bid must
be from any one particular data feed; thus, trading centers will be
able to continue using the data feed they currently use, and for which
they

currently pay.\917\ As a result, we believe this commenter's estimates
of the implementation costs are higher than our estimated
implementation costs for Rule 201.
---------------------------------------------------------------------------

    \913\ See letter from Wolverine. In its letter, Wolverine
multiplied its implementation cost estimate of $500,000 by 382 non-
SRO trading centers for a total of $191,000,000. See id. As
indicated above, however, we now estimate that there are 407 non-SRO
trading centers. See supra note 686.
    \914\ Id.
    \915\ See infra note 960 and accompanying text (discussing our
estimated implementation costs for trading centers).
    \916\ See supra notes 661 to 669 and accompanying text
(discussing comments on the impact of the alternative uptick rule on
implementation and on-going monitoring and compliance costs).
    \917\ See supra notes 404 to 411 and accompanying text
(discussing the use of various data feeds in determining the current
national best bid).
---------------------------------------------------------------------------

    Another commenter conducted a survey of firms with respect to
implementation cost estimates. Cost estimates in response to the survey
indicated that a circuit breaker triggering a short sale price test
based on the national best bid would have implementation costs that
averaged between $235,000 and $2,000,000 per firm.\918\ This estimated
implementation cost range is significantly higher than our estimated
range of, on average, $68,381 per non-SRO trading center to $86,880 per
SRO trading center for implementation.\919\ We note that the
commenter's survey results covered fifty firms, categorized as large
firms, regional firms, and clearing firms, rather than SRO trading
centers, non-SRO trading centers and broker-dealers. Thus, it is
difficult to determine the implementation costs to trading centers,
including non-SRO trading centers, from these survey results. In
addition, these cost estimates were based on a circuit breaker
triggering the proposed modified uptick rule and, as such, were not
specific to the alternative uptick rule. Because the alternative uptick
rule references only the current national best bid, unlike the proposed
modified uptick rule and the proposed uptick rule, which would have
required sequencing of the national best bid or last sale price, we
believe that the alternative uptick rule will be easier and less costly
to implement and monitor than the proposed modified uptick rule or the
proposed uptick rule.\920\
---------------------------------------------------------------------------

    \918\ See letter from SIFMA (June 2009). SIFMA did not
categorize estimates of the implementation costs of a circuit
breaker triggering a short sale price test based on the national
best bid by SRO trading centers, non-SRO trading centers, and other
broker-dealers, but categorized responses by larger firms, with
implementation cost estimates that averaged $2,000,000 per firm,
with the highest estimate at $9,000,000 per firm, regional firms,
with estimates that averaged $235,000 per firm, with the highest
estimate at $500,000 per firm, and clearing firms, with estimates
that averaged $1,200,000 per firm, with the highest estimate at
$1,900,000 per firm. SIFMA only provided the average and highest
cost estimates per category. See id.
    \919\ See infra note 960 and accompanying text (discussing our
estimated implementation costs for trading centers).
    \920\ See supra notes 661 to 669 and accompanying text
(discussing comments on the impact of the alternative uptick rule on
implementation and on-going monitoring and compliance costs).
---------------------------------------------------------------------------

    Commenters indicated that implementation costs would include costs
for modifications to multiple systems, including blue sheet, OATS, and
OTS reporting systems, trading system interfaces, execution management
systems, and order management systems; modifications to data feeds;
\921\ adjustments to data retention capabilities; revisions to written
policies and procedures; and personnel training regarding the new