Amid increasing clamor from investors, economists and lawmakers for tight restrictions on short-selling, the Securities and Exchange Commission, or SEC, Wednesday holds a meeting to examine various proposals to curb short selling of stocks. Today's session, the first meeting under new SEC Chairman Mary Schapiro, is expected to consider as many as four different options including the renewal of the old 'uptick rule', and allow 60 days for comments before deciding to vote on whether to implement them.

Short-selling is the sale of borrowed shares by an investor and the repurchase of those shares later at a lower price when the stock falls. In a short sale, traders make money from the difference in price. The recent financial crisis has raised concerns over short-selling, and several economists and lawmakers are of the view that aggressive short-selling was behind the collapse of the shares of banks and many Wall Street companies last fall.

Today's meeting follows the Financial Accounting Standards Board's decision last Thursday to give banks higher discretion in putting a value on their falling mortgage securities.

During the market slump last fall, the SEC temporarily banned short-selling in financial stocks at the behest of then Chairman Christopher Cox. Schapiro assumed the post of SEC Chairman in January. Since then, the Commission has initiated drafting new proposals to control short-selling. There has also been increasing political pressure for the SEC to act.

The old 'uptick rule', which was implemented at the time of Great Depression in 1938 and abolished by the SEC in 2007, prevented traders from short selling unless the stock price in the most recent trade was higher than the previous one.

Another option is a bid test, which permits short-selling only when the stock moves at a higher price than its last trade. The Commission also considers a proposal to ban short-selling in a stock if it has declined by a set percentage in a day. A report said that the SEC may consider a proposal similar to one recently offered by Nasdaq OMX, NYSE Euronext, BATS Exchange Inc. and the National Stock Exchange.

According the SEC officials, the rules are intended to give confidence to investors. This is an issue that has both strong supporters and detractors, and we will be very deliberative in our effort to determine what is in the best interest of investors, Schapiro said on Monday.

Meanwhile, supporters of short-selling criticize that the rules could undermine the integrity of the markets. According to them, short-sellers' trades and skeptical analysis of corporate balance sheets are essential to the efficient functioning of the markets. Many large investors use short-selling techniques as a hedge to protect them against losses in declining markets.

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