Which statement is TRUE when a director of an NYSE listed company sells short that company's common stock?

Short selling by a director of a publicly traded company, particularly one listed on the NYSE, raises significant concerns regarding insider trading and the integrity of the market. Under the Securities Exchange Act of 1934, directors, officers, and other affiliates of a company are generally prohibited from engaging in short sales of their company's stock because it creates a conflict of interest and can lead to scenarios where they might have advance knowledge of negative information about the company that could affect the stock price.

The prohibition is in place to ensure that those in positions of authority do not exploit their inside knowledge for personal financial gain at the expense of other investors. Since the potential for manipulation and the erosion of market confidence are substantial, the law mandates such restrictions.

Therefore, the statement that this action is prohibited under the Securities Exchange Act of 1934 is true, reflecting the regulatory environment designed to uphold fair and ethical trading practices in the securities markets.