The SEC is expected to propose within the next month that the uptick rule be restored in the stock market. The uptick rule required that short sellers only short stocks on an uptick and was designed to prevent bear raiders from driving stocks down with aggressive shorting.The S&P 500 is down 53% since the rule was scrapped in July of 2007 and Barney Frank and Chris Dodd are among the proponents of bringing it back.
It's not a terrible idea but it is an irrelevant one. There are plenty of very good reasons that the stock market is down since July of 2007 and it seems unlikely that short sellers are behind it all. Short sellers didn't force banks to make crappy loans and they didn't make consumers overextend themselves.
Part of what irks me about this is that it's yet another example of the regulatory framework we have in Washington, where politicians serve as cheerleaders and see their primary goal as making the stock market go up -- whether it deserves to or not.
Here's what I don't understand: When the market goes on a bull run, how come no one jumps forward to insist that we institute a "downtick rule" to require that investors only buy stocks on downticks? That would be incredibly stupid, but it's the same exact principle as the uptick rule.
The role of regulators should be to create an orderly, fair, and transparent marketplace that allows the market to price stocks. Arbitrary rules that make short selling more difficult have the exact opposite effect.
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Reader Comments (Page 1 of 1)
3-10-2009 @ 5:35PM
rpgpa said...
ah yes. the other problem with the internet. People who have no business writing and "article" or viewpoint., ill call this vomit. Zac dont write horse dug like this again. Its a shame some may read this and actually believe your idea has basis. You need to start smellin where the money goes and the n revisit writing again. Start with hedgies buddy boy and get back to us
3-10-2009 @ 6:47PM
Dan Barnett said...
Zac,
The uptick rule was a response to a very specific manipulation & the issue has been discussed here before. Short selling, particularly "naked shorting" can be used in a way that is neither orderly, fair, nor transparent.
That said, one wishes this site could remain civil.