I believe the Up-Tick rule was dropped to allow Computerized High-Speed trading programs to trade equally Long and Short. I can come to no other conclusion.
The rule had worked for nearly 70 years. I heard of no one asking that it be removed. As a trader, I can say without hesitation, it did help prevent unchecked shorting of stocks for the purpose of driving shares lowers. Small subsets of the market began crashing within days of the rule being dropped, and the SEC is still dragging their feet to reinstate it.
And while we're on the subject, what happened to the Trading Curbs implemented to restrict computerized trading? Automated trading was said to have increased volatility, panic selling and additional losses during more recent market crashes. They wisely implemented trading Curbs to stop computerized trading from destroying the markets. But you guessed it, the trading curbs were also dropped. Are they now saying the very rules they put in place just a few years ago are no longer needed?
The recent news about Flash Orders, High-Speed trading and that the stolen Goldman Sachs trading software could be used to manipulate markets tied all the loose ends together. For their trading programs to work efficiently, they needed the rules removed, so the rules were removed. The SEC chose to remove the very safeguards designed to protect the investing public, pension plans and 401ks in order to benefit Wall Street's most elite traders. They now callously look the other way as the biggest trading firms strip millions from the markets, mutual funds and retirement plans every day.
These are two of 100s of examples showing the attack on your investments. When you review these charts keep in mind this happened a full year before the general market sell off.
Click on chart for a better view
Click chart for a better view
The SEC is requesting public comments concerning the Up-Tick rule. Please voice your opinion here: Submit a Comment The vast majority of comments strongly support rule reinstatement.
Read commentsCongressman Gary Ackerman is also pushing the SEC to reinstate the rule.
Read his letter From
wikipeda;The
uptick rule generally prohibits
short selling of
securities except on an uptick. The rule was defined by
U.S. Securities and Exchange Commission (SEC) which summarized it: "
Rule 10a-1(a)(1) provided that, subject to certain exceptions, a listed security may be sold short (A) at a price above the price at which the immediately preceding sale was effected (plus tick), or (B) at the last sale price if it is higher than the last different price (zero-plus tick). Short sales were not permitted on minus ticks or zero-minus ticks, subject to narrow exceptions."
[1]The rule went into effect in 1938 and was removed when
Rule 201 Regulation SHO became effective in 2007.
In 1978, the purpose of the uptick rule was described in a standard text "To correct inequities that occurred on Stock Exchanges prior to 1934, the SEC implemented Rule 10a-1 and 10a-2. It was not unusual in those days to discover groups of
speculators pooling their
capital and selling short for the sole purpose of driving down the stock price of a particular security to a level where the stockholders would
panic and unload their fully owned shares. This, in turn, caused even greater declines in value.
"In 2004, the Commission initiated a year-long pilot that eliminated short sale price test restrictions from approximately one-third of the largest stocks. The purpose of the pilot was to study how the removal of such short sale price test restrictions impacted the market for those subject securities.
Short sale data was made publicly available during this pilot to allow the public and Commission staff to study the effects of eliminating short sale price test restrictions. Third-party researchers analyzed the publicly available data and presented their findings in a public Roundtable discussion in September 2006. The Commission staff also studied the pilot data extensively and made its findings available in draft form in September 2006, and final form in February 2007.
Elimination of the uptick rule
The SEC eliminated the uptick rule on July 6, 2007.
[9] The SEC concluded from the study cited above: "The general consensus from these analyses and the roundtable was that the Commission should remove price test restrictions because they modestly reduce liquidity and do not appear necessary to prevent manipulation. In addition, the empirical evidence did not provide strong support for extending a price test to either small or thinly-traded securities not currently subject to a price test."
[6] Commenting on the scrapping of the uptick rule, The Economist reported that "short-sellers argue [it] was largely symbolic, and it remains in place at only a few of the world's big stock exchanges."[10]
Calls for reinstatement
On August 27, 2007, the New York Times published an article on Muriel Siebert, former state banking superintendent of New York, "Wall Street veteran and financial sage", and, in 1967, the first woman to become a member of the New York Stock Exchange. In this article she expressed severe concerns about market volatility: “We’ve never seen volatility like this. We’re watching history being made.” Siebert pointed to the uptick rule, saying, “The S.E.C. took away the short-sale rule and when the markets were falling, institutional investors just pounded stocks because they didn’t need an uptick."[11]
On March 28, 2008 Jim Cramer of CNBC offered the opinion that the absence of the uptick rule harms the stock market today. He claimed that reintroducing the uptick rule would help stabilize the banking sector.[12]
On July 3, 2008 Wachtell, Lipton, Rosen & Katz, an adviser on mergers and acquisitions, said short-selling was at record levels and asked the SEC to take urgent action and reinstate the 70-year-old uptick rule.[13] On November 20, 2008, they renewed their call stating "Decisive action cannot await ... a new S.E.C. Chairman. ... There is no tomorrow. The failure to reinstate the Uptick Rule is not acceptable." [14]
On July 16, 2008, Congressman Gary Ackerman (D-NY), Congresswoman Carolyn Maloney (D-NY) and Congressman Mike Capuano (D-MA) introduced H.R. 6517, "A bill to require the Securities and Exchange Commission to reinstate the uptick rule on short sales of securities."[15]
On September 18, 2008, presidential candidate and Senator John McCain (R-AZ) said that the SEC allowed short-selling to turn "our markets into a casino." McCain criticized the SEC and its Chairman for eliminating the uptick rule.[16]
On October 6, 2008, Erik Sirri, director of the Securities and Exchange Commission's Division of Trading and Markets, said that the SEC is considering bringing back the uptick rule, stating, "It's something we have talked about and it may be something that we in fact do."[17]
On October 17, 2008, the New York Stock Exchange reported a survey with 85% of its members being in favor of reinstating the uptick rule with the dominant reason to "help instill market confidence".[18]
On November 18, 2008, the Wall Street Journal published an opinion editorial by Robert Pozen and Yaneer Bar-Yam describing an analysis of the difference between regulated and unregulated stocks during the SEC pilot program. By using an analysis they claimed to be more comprehensive than the SEC's original study, they showed that unregulated stocks have lower returns, with a difference that is both statistically and economically significant. They also reported that twice as many stocks had greater than 40% drops in corresponding 12 month periods before and after the repeal.[19] [20]
On January 20, 2009, Ackerman received a letter from Chairman Cox written the day he left the SEC – in which Cox said he supports the reinstatement of an uptick rule. the letter reads “I have been interested in proposing an updated uptick rule. However, as you know, the SEC is a commission of five members. Throughout 2008 there was not a majority interested in reconsidering the 2007 decision to repeal the uptick rule, or in proposing some modernized variant of it. I sincerely hope that the commission, in the year ahead, continues to reassess this issue in light of the extraordinary market events of the last several months, with a view to implementing a modernized version of the uptick rule.”[21]
On February 25, 2009, Chairman of the Federal Reserve, Ben Bernanke in testimony before the House Financial Services Committee stated he favored the SEC to examine the restoration of the uptick-rule.[22]
On March 10, 2009, the SEC and Congressman Barney Frank (D-MA), Chairman of the Financial Services Committee announced plans to restore the uptick rule. Frank said he was hopeful that it would be restored within a month.[23][24]
Barney Frank, Ben Bernanke and the others listed above are some pretty powerful people wanting change; why can't they get it?
