News is the SEC is considering a new uptick rule for short sellers. Many CEOs whine the abandonment of the uptick rule is the reason their stocks were decimated. During the financials meltdown, the SEC outright banned shorting 16 financials entirely, and it made no notable difference. Financials melted anyway, based more on investor perceptions that they were worth not much, if not completely broke, and were obscuring their books for reason. A new uptick rule gives the SEC something to do that is popular if ineffective. Programming to implement this stuff will be immense, thus it probably won't happen right away, especially considering that "last sale" could be in several different physical markets, from NYSE to Pacific, unless also considering European markets. The NYSE now owns some there. My other concern is what happens on stocks of immense volume; e.g., FAS with 225M shares per day. Processing for this one could be more than a supercomputer with Internet-II lines could handle. That's a lot of problem for not much, as demonstrated in the short ban of financials--they melted in spite of the outright ban of shorts which included dealer shorts.
I remain convinced the problem, if any, is naked shorts, not an absence of uptick. A hedge fund, for example, can buy puts, which forces the options dealer to short to cover his risk, and those shorts are naked. The reg also requires only best effort for borrowing shares, so a lot of dealers don't bother much, knowing the Cox SEC wasn't enforcing anything much less "best effort" mush. When Bear Sterns was still trading in the fifties, traffic in puts specifying sale at 5 had started.
Uptick became passe when the markets went decimal. An uptick when the markets dealt in 1/8th points, meant something; at 1/100th of a point, it means nothing, especially on a stock that is trading, say, 500 times per second. On a lower volume stock, it will be easily manipulated by merely buying 100 shares at a higher price than is specified in whatever form a new uptick rule is drafted, then shorting 10,000 shares after the 100-share order executes.
At most, a new uptick rule will require those who whine about its demise to find something else to whine about when their world doesn't go as planned and they can't find a mirror to tell them who is the ugliest of all. Amazing how high and widespread victimhood purveys, but not surprising. Tis the reason for golden parachutes, nicht wahr?
Ironic that the SEC repeals the uptick rule (after the hedge fund lobby) stating that it has become ineffective. Yet after the decimation of the banks (bear raids) and the outcry for reinstatement the rule is being considered only after a 10% decline occurs (so called circuit breaker). So much for the BS of ineffective. Obviuosly it is effective, the SEC is in the hedge funds pocket and it is a crime. Stop the manipulation, just reinstate the rule.
ReplyDeleteYour comment regarding the ineffectivness due to decimalization is a common one. Also BS. Decimaliztion began in the year 2000. The uptick rule worked fine for 7 years. The whining is all from the manipulators who want to prevent the uptick from coming back. If it is so ineffective then why all the effort to prevent reinstatement? Short sellers are the cancer of capitalism, as they steal the life blood of a company. Naked shorts are pure thieves.
ReplyDeleteGood points and, if the rule is reinstated, we'll determine its true effectiveness. As for the naked shorts, I agree; short sellers in general, I do not. I absolutely agree the SEC and other government entities have been in a lot of pockets that are adverse to public interest. There is the real cancer.
ReplyDeleteThank you for the comments.