The uptick rule
October 26, 2008 12:04 PM Subscribe
Rule 10a-1, otherwise known as the uptick rule, provided that, subject to certain exceptions, a listed security could only be sold short at or above the last sale price. The uptick rule was introduced in 1934 when the public blamed bear traders for the 1929 crash, and was eliminated in July of 2007 after a temporary pilot program.
The SEC is now considering reinstating the rule, an effort buoyed by rumours that downtick short-selling may have facilitated an alleged 'bear raid' on Bear Stearns.
Because banning shorts altogether did a helluva lot of good this summer.
Though I can easily understand how short-selling at a lower price can create false market signals, prompting panic avalanches.
I'm holding longs that are down 25% from where I bought just last month and I'm wondering who and what are selling at these prices since 30% of the common has been shorted.
If the shorts are wrong on this issue I'm going to win big but if they're right then I'm skrewed.
posted by troy at 12:38 PM on October 26, 2008
Though I can easily understand how short-selling at a lower price can create false market signals, prompting panic avalanches.
I'm holding longs that are down 25% from where I bought just last month and I'm wondering who and what are selling at these prices since 30% of the common has been shorted.
If the shorts are wrong on this issue I'm going to win big but if they're right then I'm skrewed.
posted by troy at 12:38 PM on October 26, 2008
All manner of studies have shown that uptick rule had no effect (positive or negative). So despite all the huff and puff from both sides, it does not really matter (but expect any positive change from it).
posted by H. Roark at 12:55 PM on October 26, 2008
posted by H. Roark at 12:55 PM on October 26, 2008
If they want to really take charge, all they have to do is put this guy in charge.
posted by H. Roark at 12:57 PM on October 26, 2008
posted by H. Roark at 12:57 PM on October 26, 2008
It seems like there are so many ticks now that trading is electronic that waiting for a random uptick is meaningless.
posted by smackfu at 1:15 PM on October 26, 2008
posted by smackfu at 1:15 PM on October 26, 2008
Penny-wide markets make the uptick rule irrelevant. Crack down on those abusive fail-to-delivers first, donchathink?
posted by fatllama at 1:22 PM on October 26, 2008
posted by fatllama at 1:22 PM on October 26, 2008
Proposed reinstatement of market regulations make baby Cramer cry.
posted by Smart Dalek at 1:57 PM on October 26, 2008
posted by Smart Dalek at 1:57 PM on October 26, 2008
The idea that the uptick rule could have prevented the recent collapse seems like voodoo magical thinking to me. It would have done nothing to solve the underlying problems, it simply would have made it slightly more difficult to profit from the collapse, and might have brought it slightly forward in time.
posted by delmoi at 6:36 PM on October 26, 2008
posted by delmoi at 6:36 PM on October 26, 2008
The uptick rule makes as much sense as having a rule that only allows going long on a downtick. It is stupid and superstitious.
posted by gregor-e at 7:20 PM on October 26, 2008
posted by gregor-e at 7:20 PM on October 26, 2008
Sorry all: that Financial Times link("now considering reinstating the rule") ought to go here. Not sure how the other link got in there.
By the way, I'm fairly agnostic about the uptick rule, myself, being neither an economist nor a trader. Just thought it was interesting, especially with the whole fraud/conspiracy tie-in, especially because in both cases there seems to be such an obvious explanation in overvaluation. But no: fortunes were lost and it's got to be somebody's fault.
posted by anotherpanacea at 7:24 PM on October 26, 2008
By the way, I'm fairly agnostic about the uptick rule, myself, being neither an economist nor a trader. Just thought it was interesting, especially with the whole fraud/conspiracy tie-in, especially because in both cases there seems to be such an obvious explanation in overvaluation. But no: fortunes were lost and it's got to be somebody's fault.
posted by anotherpanacea at 7:24 PM on October 26, 2008
If a short seller can actually destroy value in an otherwise healthy stock, it makes the market look more like a confidence game to me. A short sell necessarily involves making one new buyer for every sale, and I think there's reporting done on shorts fairly regularly.
Perhaps the vast majority of investors in the market are not interested in what it is the company does so much as the value other people give the company.
posted by pwnguin at 8:39 PM on October 26, 2008
Perhaps the vast majority of investors in the market are not interested in what it is the company does so much as the value other people give the company.
posted by pwnguin at 8:39 PM on October 26, 2008
H. Roark - Thats a fairly strong statement with no cite whatsoever. I guess, if you say so that makes it true.
Of course, the same can be said of several of the other similar comments, which I expect are from individuals that have never put theirs or others capital at risk and most likely have little clue whatsoever how markets or trading systems really work, a set of people that would also include most of the same academics, that pronounce whether such and such regulation makes sense, or that develop theories and models on how o price derivative securities. The elimination of the uptick rule resulted in a stunning application of the 'law of unintended consequences' and if you think that it would have had no braking impact in the recent market you probably do not play for real in these markets. Everyone is entitled to an opinion on Metafilter though...The major impediment to reinstating it is the impact on countless trading systems and algorithms deployed in systems in the field, not any lack of consensus that it would have the desired effect, even though there are studies which 'prove' that shorting bans were not effective. I have no real desire to analyze their methodology, but instinct questions them.
posted by sfts2 at 8:44 PM on October 26, 2008
Of course, the same can be said of several of the other similar comments, which I expect are from individuals that have never put theirs or others capital at risk and most likely have little clue whatsoever how markets or trading systems really work, a set of people that would also include most of the same academics, that pronounce whether such and such regulation makes sense, or that develop theories and models on how o price derivative securities. The elimination of the uptick rule resulted in a stunning application of the 'law of unintended consequences' and if you think that it would have had no braking impact in the recent market you probably do not play for real in these markets. Everyone is entitled to an opinion on Metafilter though...The major impediment to reinstating it is the impact on countless trading systems and algorithms deployed in systems in the field, not any lack of consensus that it would have the desired effect, even though there are studies which 'prove' that shorting bans were not effective. I have no real desire to analyze their methodology, but instinct questions them.
posted by sfts2 at 8:44 PM on October 26, 2008
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