New Money

The Low-Down on the Uptick Rule

By Katy Marquardt

Posted: March 10, 2009

Today, Rep. Barney Frank, head of the House Financial Services Committee,  said he expects the SEC to bring back the "uptick" rule--which was eliminated in June 2007.

So what's this uptick rule? Here are the basics:

Uptick Rule will work but their are still more loopholes the SEC needs to enforce

Last September the SEC stated they have zero tolerance for abusive naked short selling yet they have rarely if ever locate violators.

How does the SEC determine whether an institution is in compliance with rules?

They don’t. Presently the only way they determine compliance is through an SEC audit they do months after institution is flagged if at all.

In the case of a bear raids does not work.

Here are some Bear Raid Common sense suggestions that would be more effective than an uptick rule.

1. Do what we pay you to do regulate the market! If you don’t be criminally held responsible. No more blanket immunity like you gave Mr. Paulson,.

2. Amend Regulation SHO effectively to require broker-dealers before they accept short sales orders / effectuate short sales from their own account. Require by law shares in hand that they are shorting. If they don’t take the brokers license away for life and fine the firm 100X what they failed to have on hand. No one would risk their license to help out a friend and no firm would look the other way or promote this loophole.

3. Eliminate the broker having “reasonable grounds to believe that the security can be borrowed.” Everyone sees what it cost the world taxpayers when we have no oversight system in place.

4. Long positions are required to be disclosed yet substantial short positions are not. They should be treated equally and both should be reported.

5. The SEC should vigorous enforce action against violations such as the Regulation SHO and all other attempts at market manipulation. Start with FAZ and SKF since the government are now such a large shareholder.

6. Fines and penalties should be so severe to curb illegal temptation and more importantly not encourage.

7. Hire hundreds of enforcers that know the game and are presently laid off by the institutions. Use the Wallstreet bonus system the more illegal money and corruption they locate the more money they earn.

sharron @ Mar 10, 2009 20:36:50 PM

Very good news for Longs

Been through the 2002 bear market and IMO the uptick rule did temper the bear-raids back then. One must remember fear is a much stronger emotion than enthusiasm, and the shorts only need to trigger an avalanche and they’re quickly joined by fear-stricken sellers on the fence. Why do you think the bear-raids typically took place after 3, so longs have no chance to recover, and who wants to go long at 3:30 when market is dropping 4% in 30 minutes.

Jim of NJ @ Mar 10, 2009 16:31:51 PM

Bear in mind

That people who short stocks are traders, not investors. We eliminated the uptick rule for benefit of TRADERS, NOT YOU.

And sure enough, YOU paid for that grievous error---and you're still paying. A LOT.

Muser of NM @ Mar 10, 2009 15:20:51 PM

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New Money

Katy Marquardt, a senior editor at U.S.News & World Report, takes a contemporary look at happenings in the financial world and aims to help young investors get going with their portfolios--or just sound cool at cocktail parties. Have a question? E-mail Katy at newmoney@usnews.com

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