Stocks Trading Under 1.00

Is there a SEC rule or regulation that says stocks can not be shorted under $5 a share?

The price of DEIX went under $5 a share back on Sep. 6, 2007 at the open and has stayed below $5 since yet short interest has gone up at times. I thought that to keep stocks from going into bankruptcy that the SEC said stocks were not allowed to be shorted by investors below $5 a share. I know that on the Scottrade trading platform that I can not short any stock under $5 a share. Is there a SEC rule or regulation that says stocks can not be shorted under $5 a share? If so, what is the number or name of the SEC regulation or rule?

Short Interest

Directed Electronics, Inc. – Common stock
Settlement Date Short Interest Percent Change Average Daily Share Volume Days to Cover
02/15/2008 545,408 22.53 128,061 4.26
01/31/2008 445,132 (17.01) 194,886 2.28
01/15/2008 536,383 11.16 100,480 5.34
12/31/2007 482,520 13.61 127,893 3.77
12/14/2007 424,706 (29.40) 523,564 1.00
11/30/2007 601,573 (13.76) 816,000 1.00

http://www.nasdaqtrader.com/Trader.aspx?id=ShortInterest

First, the price of a stock has nothing to do with the company’s business. Trading on the market consists of stock changing hands from one investor to another, the company is not involved in this trading. Shorting a stock can not make a company go bankrupt.

Back to your question: The SEC has no such rule. Brokers are free to make any rules they want as long as the are at least as strict as SEC NASD and Exchange rules. Therefore,many brokers restrict activity in “low priced” stocks to protect both the firm and the client because low priced stocks are famous for being highly volatile. Exactly what the restrictions are and what “low priced” means varies from firm to firm.

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