Revisiting the uptick rule

[Paulie]

And while we're at it, naked shorting.

Barney Frank said back in the begininng of March, ironically right around the exact time the market bottomed, that the uptick rule would be reinstated "within a month". It hasn't yet, of course, and since the market has rallied heavily, I wonder if very many investors even care anymore.

The other day the SEC announced plans to shine some light on short selling, not only reinstating the uptick rule, but also considering a move to list the aggregate volume of a stock's shorted shares. I like that idea, personally, but I invest long almost exclusively, too. I've only once ever invested short, and that was a double-short ETF. I made my money and got out. I don't really like shorting, personally, but I agree with its purpose of keeping the markets liquid. Without it, long investors would probably have a much harder time of buying in lower on dips and such.

I agree with the uptick rule. I definitely DON'T agree with naked shorting, though. If you don't borrow the shares first, how can you possibly sell any? It's ridiculous and it needs to be done away with completely.

So this all being said, obviously Barney pulled our chains. Should we bring back the uptick rule and do away with naked shorting?

For those who don't know what those are, the uptick rule prevents short sellers from selling a security's shares short until that security's last move was on an "uptick", or a move upwards of a to-be-designated amount (probably a very small move relative to the share price...i.e. 1 cent on shares priced over $1.) And naked shorting is simply short selling shares you haven't borrowed first.

Thoughts?

 

[editec]

As I understand it, re-establishing the former rules regarding short selling would take a lot of the violility out of the markets.

Rather makes one wonder why they ever changed that law to begin with, doesn't it?

 

[Paulie]

As I understand it, re-establishing the former rules regarding short selling would take a lot of the violility out of the markets.

Rather makes one wonder why they ever changed that law to begin with, doesn't it?

It's debateble whether the uptick rule would really have THAT much of an effect on volatility, but it would definitely help to somewhat put a damper on it.

It would help mostly during the times of last fall when bank shares were plummeting, as it would keep shorters from piling on short sale orders and compounding the share price's freefall.

Banning naked shorting though would definitely be a plus. The point of selling short is borrowing from longs and returning them upon voluntary repurchase or margin call. If you never borrowed them to begin with, you theoretically don't have anything you have to return. Last fall, the bank stocks were being naked shorted and in many cases shares were not being delivered to buyers. The SEC put a "prompt delivery" rule in place which brought down the delivery failures by a large percentage, but not completely. NO ONE should have to get screwed like that when investing.

 

[Mr.Fitnah]

If they go back to the old rule it would stop some of the dogpiling

 

[Paulie]

I also don't like that the market makers are able to view individual investors' trade orders before they even hit market.

Why should they have that kind of competitive advantage? The playing field should be level. The other day I was trying to liquidate the last of my shares of a stock I owned, and I SWEAR the bid price was moving down almost PURPOSELY, forcing my ask price to trail it without ever executing. It was like I was personally being monitored on my limit price changes, and the market makers were just FUCKING with me. Eventually it executed as I dropped it a few more cents (I really needed the funds to buy another stock on a current dip at the time), and then promptly moved back up above my executed limit price.

I felt VIOLATED.