NYSE wants ETFs exempt from short sale rules

NEW YORK (Reuters) – The New York Stock Exchange will ask U.S. regulators to exempt exchange-traded funds from any new rules curbing short selling, an executive at the exchange operator said Monday.

The Securities and Exchange Commission proposed five short sale restrictions last week and is now seeking public comment. It is under pressure to crack down on the trading strategy that profits from falling stocks, and has indicated it is considering including ETFs in any new rules.

“We’ll be including in our comment letter that we believe an exemption for ETF products is appropriate,” Joseph Mecane, NYSE Euronext’s executive vice president of U.S. cash markets, told Reuters in an interview.

ETFs — which have exploded in the last few years along with the growth in high-frequency trading firms — are publicly traded products that track an index, commodity or some other underlying asset.

Leveraged inverse ETFs, such as UltraShort ProShares, yield a compounded profit when the underlying asset falls. They have been blamed by some for exacerbating the sharp market drop that began last summer.

“They seem to be functioning as intended,” Mecane said of ETFs, which exchanges have come to rely on for continued growth in trading volumes. “We don’t think they actually cause distortive behavior, and that’s the main area where they’ve been villainized.”

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