Wednesday, March 11, 2009

The Uptick Rule

The Uptick Rule is officially known by the SEC as rule 10a-1, it was first implemented in 1938 by the first SEC Commissioner as a way of stemming the downward spiral of stock prices. It served the market well from 1938 through July 6, 2007, when the SEC suspended the rule claiming that the trading patterns in the "modern" trading world did not warrant it. During the last few months the absence of the Uptick Rule was very noticeable. The Uptick Rule allows a "short sale" of stock only if the preceding sale was an uptick. This prevents traders from forcing the price of a stock down. The SEC suspended the rule believing that with so many other instruments available to "short" a stock, such as options and ETF's that the Uptick Rule would be ineffective.

In the current Stock Market drop of over 50% an Uptick Rule should have slowed down the downward spiral especially in certain securities that were sold short without mercy. Many stocks that have had their share prices forced down by the short sellers have had to defend their stock prices in order to preserve their credit ratings. Fundamentally some of these stocks were at realistic levels until the Short Sellers determined that they would be a good target for quick profits by forcing the stock price and the perception of the stock price down.

Rep. Barney Frank recently announced that the Uptick Rule would be re-instituted within a month. This is something that the Obama Administration and the Democratic Congressional Congress should have tended to on January 20, 2009, why did they and why are they continuing to wait. There are just some common sense things that could have easily be done by the new Administration that were overlooked and the Uptick Rule is definitely one of them.

The Republican Presidential Administrations and the Republican Congresses since the Reagan Administration have been systematically overturning banking, insurance and financial rules that were put in place under FDR during the Great Depression. These rules have served the Nation well since the Great Depression and as is evident by the current Republican Economic Depression were necessary to keep the financial house in order. The Obama Administration would do well to review all the rules and regulations that were overturned by the Republicans since the Reagan Administration and consider reacting them to again keep the financial in check.

Add to Google

No comments: