WASHINGTON (MarketWatch) -- The Securities and Exchange Commission on Monday made permanent a temporary commission rule seeking to rein in "naked shorting," but some lawmakers argued the regulation is weak and they proposed an alternative approach.

"Until the SEC actually toughens its rules so that abusive short selling can be stopped effectively with enforceable standards, I am concerned that the abuses that took place last year that hastened the demise of Lehman Brothers and Bear Stearns could happen again," said Sen. Ted Kaufman, D-Del.

"Instead of proposing action today to deal with the problem, the SEC apparently is content to let potential solutions sit on the shelf for another two months," Kaufman said.

Naked short selling is the practice of selling a stock short without first borrowing the security or ensuring that the security can be borrowed as is done in a conventional short sale.

The regulator introduced a rule last year to limit naked shorting by requiring broker-dealers to promptly purchase or borrow securities that they would use to deliver on a short sale. That was set to expire July 31, and the SEC said Monday it made the rule permanent.

However, Kaufman and a group of lawmakers argued that the SEC's steps to rein in naked short selling aren't effective at clamping down on naked short sellers. They are hoping the agency considers a pre-borrow requirement that they believe could end the problem of naked short selling.

With a pre-borrow requirement an institution would be required to arrange formally to borrow shares, or "pre-borrow" before engaging in a short sale. Without a pre-borrow requirement it is generally enough for a broker to determine that it has a reasonable basis to deliver the securities when an investor seeks to borrow shares for a short sale.

In an emergency action last year, the SEC temporarily required hedge funds and other short-selling institutions to pre-borrow shares, but it let that provision expire.

The SEC proposed discussing a pre-borrow requirement and other short sale provisions at a public roundtable discussion it has scheduled for Sept. 30. Kaufman and other lawmakers want SEC to launch a pilot program to study whether a pre-borrow requirement would end the problem of naked short selling.

"I am pleased that the SEC has announced some new transparency measures and a roundtable on September 30 on the agenda to curb the abuses of naked short selling," Kaufman said.

Collection of data

The SEC also said it would no longer require hedge funds and other institutional investors to provide short-sale position data to the agency on a weekly, confidential basis. That provision, which was adopted in October, is set to expire on Aug. 1.

Instead of collecting data on short-sales, the regulator said it was taking steps to increase the public availability of information related to short sales, including an effort that would make public short-sale volume and transaction data available publicly.

In the next few weeks, the SEC said it expects self-regulatory organizations such as stock exchanges to start publishing aggregate short-selling volume in individual equity securities daily on their Web sites. However, short sellers would not be required to make their positions publicly available.

"These actions should provide a wealth of information to the commission, other regulators, investors, analysts, academics and the media," the SEC said in a statement.

Uptick

Separately, under pressure from lawmakers and financial institutions, the SEC in April approved the release of five different proposals for reinstating the up-tick rule, a provision that would limit short selling. SEC Chairwoman Mary Schapiro said last week the agency plans to adopt one or more up-tick rules by the end of summer.

The five SEC proposals, which were put out for comment vary from reinstating an old rule to creating a new rule that would only apply in severe market conditions.

The uptick rule, which was removed in 2007 after 70 years, allowed short sales only if the preceding sale boosted a company's stock price by at least a penny. The uptick rule was designed to make sure short sellers couldn't dominate trading in a stock to drive its price lower.