Short-sellers beware, the Securities and Exchange Commission's latest version of proposed new restrictions on shorting are even tougher than the original.

Under the SEC's new plan, short sales would be allowed only when the stockholder offers to let short-sellers borrow at a price above the current national best bid. The proposal is a modified version of the "uptick" rule, repealed in July 2007, which permitted shorting only after a share's price increased. The rule was eliminated after studies showed that the conversion of share pricing from pennies to decimals had rendered the previous iteration ineffective in preventing manipulation of share prices.

But after an outcry over the perceived role of short-selling in last fall's market panic, the SEC in April proposed bringing back a modified form of the rule. Under sometimes intense pressure from Congress, the commission is attempting to curb what some say is excessive short-selling that contributed to the meltdown of stock prices last fall.

If implemented, the latest SEC plan could have a big impact on high frequency traders who use black box, or algorithm-driven, computer programs to take advantage of short-term downward pressure on a security by immediately selling at or "hitting" the bid. As a result, market watchers worry that the proposed rule could remove liquidity from the market and dampen overall stock trading, perhaps significantly.

Recognizing that the revised proposal might require some time to digest, the commission delayed until the end of September the possibility of any action on short sales. The extra time "is consistent with the very deliberative process of determining what is in the best interest of investors," SEC Chairwoman Mary Schapiro explained when the revisions were proposed last month.

The agency said the alternative uptick rule would place a higher burden on short-sellers than previous proposals and might be simpler and less costly for the government to implement. The new proposal would not require monitoring of whether the latest bid was higher or lower than the previous one, as the two original proposals did.

In response to the outcry from last fall's turmoil, the SEC in April put out its initial proposal, which included several approaches. Also put forward was a so-called circuit breaker for stock prices that would halt short-selling in a stock for the rest of the trading session if the shares decline by 10% or more. The agency also has been looking at variations of the circuit breaker proposal, such as restricting short-selling of a stock based on its previous sale price or highest bid.

The alternative uptick rule now under consideration would allow shorting of a stock only at a price above the current national best bid.

The revised proposal is not entirely new. The SEC suggested it in its earlier release but did not request comment on it. It is similar to a proposal several stock exchanges put forth. Nasaq OMX Group Inc., NYSE Euronext and Bats Exchange Inc. last April jointly outlined an uptick-like restriction but said it should only take effect after stock prices fell by a certain percentage and triggered a circuit breaker.

The exchanges noted that requiring the short sale to be above the national best bid was technically much more feasible than requiring it above the last price. Access to the best bid is readily available, they said, whereas market fragmentation and high-speed trading has made the last price virtually impossible to track.

To explore the exchanges' concern, the commission asked for comment on whether the latest proposal should take effect for all stocks at all times, or only after a "circuit breaker" was tripped. The commission also asked commenters whether the new rule could "potentially lessen some of the benefits of legitimate short-selling, including market liquidity and pricing efficiency" and whether it would help prevent "abusive or manipulative short selling practices."

Donna Block covers securities regulation for The Deal.