Comments on: We Don’t Need an Uptick Rule http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/ the mark cuban weblog Sat, 21 Nov 2009 19:04:09 +0000 http://wordpress.com/ hourly 1 By: Keith http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/#comment-63684 Keith Fri, 10 Apr 2009 13:29:57 +0000 http://blogmaverick.com/?p=917#comment-63684 MC The Uptick rule is to prevent manipulation by parties who do not own the stock. The BS that there should be a Downtick Rule is ridiculous. There is NO uptick rule for selling shares that you own!!! There should be no downtick rule for those who wish to own the shares either. Price discovery comes from buyers and sellers of the actual stock, not from added float of borrowed shares! If you wish to bet that shares you do not own are over valued, then an uptick rule will not prevent you from getting short, just stops the Bear Raids. The idea that Shorts and Longs are somehow equal is twisted. Only Buyers and Sellers of a companies actual shares are equal....that is how true price discovery occurs.(and the true efficient market)...Borrowing Shares (hopefully) and then selling those shares is a dilutive cancer on the true value (new shares being created out of thin air). This only serves to weaken the capital structure of a company, solely for the benefit of the short seller. I would propose short selling should only be allowed in hedge situations only...but that is asking alot from the pro-manipulation hedge crowd. JKS MC
The Uptick rule is to prevent manipulation by parties who do not own the stock.
The BS that there should be a Downtick Rule is ridiculous. There is NO uptick rule for selling shares that you own!!! There should be no downtick rule for those who wish to own the shares either. Price discovery comes from buyers and sellers of the actual stock, not from added float of borrowed shares!
If you wish to bet that shares you do not own are over valued, then an uptick rule will not prevent you from getting short, just stops the Bear Raids.
The idea that Shorts and Longs are somehow equal is twisted. Only Buyers and Sellers of a companies actual shares are equal….that is how true price discovery occurs.(and the true efficient market)…Borrowing Shares (hopefully) and then selling those shares is a dilutive cancer on the true value (new shares being created out of thin air). This only serves to weaken the capital structure of a company, solely for the benefit of the short seller. I would propose short selling should only be allowed in hedge situations only…but that is asking alot from the pro-manipulation hedge crowd.
JKS

]]> By: Schnulli http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/#comment-62381 Schnulli Mon, 23 Mar 2009 03:47:55 +0000 http://blogmaverick.com/?p=917#comment-62381 The problem is that when the Fed will leverage its newly acquired 1Tril into greenbacks they might be using it for short selling. 20Tril used for shorting the market that we have now - duck and cover. As for the short squeeze that is supposed to save the market: C dropping from 55 to below a buck was not a problem. But it seemed to be a problem when it was nearing four on Friday the previous week, when my ticker said "trading suspended". LOL The problem is that when the Fed will leverage its newly acquired 1Tril into greenbacks they might be using it for short selling. 20Tril used for shorting the market that we have now – duck and cover.

As for the short squeeze that is supposed to save the market: C dropping from 55 to below a buck was not a problem. But it seemed to be a problem when it was nearing four on Friday the previous week, when my ticker said “trading suspended”. LOL

]]> By: Schnulli http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/#comment-62379 Schnulli Mon, 23 Mar 2009 03:29:56 +0000 http://blogmaverick.com/?p=917#comment-62379 Yes, good point - if the uptick rule is inconsequential why was it removed in the first place? And it was removed in a still somewhat bullish market where you can't see much difference due to upticks being all over the place... Yes, good point – if the uptick rule is inconsequential why was it removed in the first place? And it was removed in a still somewhat bullish market where you can’t see much difference due to upticks being all over the place…

]]> By: George http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/#comment-62035 George Mon, 16 Mar 2009 01:18:45 +0000 http://blogmaverick.com/?p=917#comment-62035 DEAR MARK CUBAN: After all these discussions the UPTICK RULE seems to have significance. Looks like the UPTICK RULE is NOT just a "simple issue". By now you should be smart enough to understand that. When the UPTICK RULE gets reinstated you will see the "Efficient Market" Theory start to materialize. Until then there is nothing efficient about the market, unless your a day trader performing naked short-selling throughout this lackluster regulatory period. Noticed how the stock market just decided to go up last week after the news emerged of reinstating the UPTICK RULE? Maybe a lot of the short-sellers are running scared or just getting caught in a "short-squeeze". U.S. SEC to meet April 8 to weigh uptick revival http://news.yahoo.com/s/nm/20090313/bs_nm/us_financial_sec US SEC to meet April 8 to weigh uptick revival http://www.forbes.com/feeds/reuters/2009/03/13/2009-03-13T224239Z_01_N13545158_RTRIDST_0_FINANCIAL-SEC-UPDATE-2.html Adam Mesh: Short Squeeze Will Save Stocks http://moneynews.newsmax.com/streettalk/adam_mesh_squeeze/2009/03/05/188765.html DEAR MARK CUBAN:

After all these discussions the UPTICK RULE seems to have significance. Looks like the UPTICK RULE is NOT just a “simple issue”. By now you should be smart enough to understand that. When the UPTICK RULE gets reinstated you will see the “Efficient Market” Theory start to materialize. Until then there is nothing efficient about the market, unless your a day trader performing naked short-selling throughout this lackluster regulatory period. Noticed how the stock market just decided to go up last week after the news emerged of reinstating the UPTICK RULE? Maybe a lot of the short-sellers are running scared or just getting caught in a “short-squeeze”.

U.S. SEC to meet April 8 to weigh uptick revival
http://news.yahoo.com/s/nm/20090313/bs_nm/us_financial_sec

US SEC to meet April 8 to weigh uptick revival
http://www.forbes.com/feeds/reuters/2009/03/13/2009-03-13T224239Z_01_N13545158_RTRIDST_0_FINANCIAL-SEC-UPDATE-2.html

Adam Mesh: Short Squeeze Will Save Stocks
http://moneynews.newsmax.com/streettalk/adam_mesh_squeeze/2009/03/05/188765.html

]]> By: Peter http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/#comment-61926 Peter Thu, 12 Mar 2009 21:27:30 +0000 http://blogmaverick.com/?p=917#comment-61926 Part of the problem with the theories of efficient markets is that they simply do not take emotion into account (as most with most theories, that is considered "soft" and not relevant). The uptick rule existed for one very good, and very valid reason: FEAR is often much more powerful than GREED. We have a lot of things wrong with today's markets. A very big thing wrong is that there are entirely TOO many weapons of fear available for short sellers, compared to weapons of greed which can be used by the long side (pumping, etc). Currently, false rumors fed to the press, combined with the ability to short sell without any uptick rule (and thus push the price down) AND the ability for some to short sell without validly borrowing a stock (naked shorting) allow short sellers to throw panic and fear into the market concerning one or more companies. The net result is the destruction of said companies' ability to raise capital, and in some cases operate their business at all. YES, I agree that short sellers target companies which may have a history of being poorly run...or which may have legitimate problems in their operations. BUT, the problem with allowing short sellers to completely obliterate the capitalization of said companies completely eliminates the ability of said company or companies to get BETTER. By allowing short sellers to engage in these practices we encourage the DESTRUCTION of every company which has a misstep, rather than a paddling which acts as a measure to promote better management and recovery. And yes, its entirely possible to destroy a company this way, using FEAR. Short sell a stock without an uptick rule and engage in either naked shorting (or in the case of a fairly liquid stock, this may not even be necessary) and you can cause a deep enough fall of the price in such a short time that fear will cause investors to dump the stock before investigating further. Nobody wants to lose everything...so that fear will drive a smaller loss on what may amount to be either a rumor, or even a legitimate problem...but one that might be recovered from. The resulting downward spiral can absolutely destroy a company's capitalization and ability to operate. So...yes, I believe shorting is a legitimate practice. But I also believe short selling without checks and bounds can decimate companies that might have issues, but don't deserve a death sentence. And, there are cases of companies (though I believe fewer cases) that have NOT been having legitimate problems, yet were attacked by short sellers. Yes, speculating short sellers have the right to sell short anything they want...however, when they have the tools to generate rampant fear, they can cause serious damage to companies that may not even be experiencing operating issues. Self-fulfilling prophecies in the making...with the prophecies being written by the short seller. Part of the problem with the theories of efficient markets is that they simply do not take emotion into account (as most with most theories, that is considered “soft” and not relevant). The uptick rule existed for one very good, and very valid reason: FEAR is often much more powerful than GREED.

We have a lot of things wrong with today’s markets. A very big thing wrong is that there are entirely TOO many weapons of fear available for short sellers, compared to weapons of greed which can be used by the long side (pumping, etc).

Currently, false rumors fed to the press, combined with the ability to short sell without any uptick rule (and thus push the price down) AND the ability for some to short sell without validly borrowing a stock (naked shorting) allow short sellers to throw panic and fear into the market concerning one or more companies. The net result is the destruction of said companies’ ability to raise capital, and in some cases operate their business at all.

YES, I agree that short sellers target companies which may have a history of being poorly run…or which may have legitimate problems in their operations. BUT, the problem with allowing short sellers to completely obliterate the capitalization of said companies completely eliminates the ability of said company or companies to get BETTER. By allowing short sellers to engage in these practices we encourage the DESTRUCTION of every company which has a misstep, rather than a paddling which acts as a measure to promote better management and recovery.

And yes, its entirely possible to destroy a company this way, using FEAR. Short sell a stock without an uptick rule and engage in either naked shorting (or in the case of a fairly liquid stock, this may not even be necessary) and you can cause a deep enough fall of the price in such a short time that fear will cause investors to dump the stock before investigating further. Nobody wants to lose everything…so that fear will drive a smaller loss on what may amount to be either a rumor, or even a legitimate problem…but one that might be recovered from. The resulting downward spiral can absolutely destroy a company’s capitalization and ability to operate.

So…yes, I believe shorting is a legitimate practice. But I also believe short selling without checks and bounds can decimate companies that might have issues, but don’t deserve a death sentence.

And, there are cases of companies (though I believe fewer cases) that have NOT been having legitimate problems, yet were attacked by short sellers. Yes, speculating short sellers have the right to sell short anything they want…however, when they have the tools to generate rampant fear, they can cause serious damage to companies that may not even be experiencing operating issues. Self-fulfilling prophecies in the making…with the prophecies being written by the short seller.

]]> By: Tom Arnold http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/#comment-61905 Tom Arnold Thu, 12 Mar 2009 16:58:37 +0000 http://blogmaverick.com/?p=917#comment-61905 There is a very strong case that could be made that the removal of the uptick rule caused several Trillion dollars in losses over the past months. The argument that removing the Uptick Rule had no effect is simply flawed. Read the SEC Pilot study at http://www.sec.gov/news/studies/2007/regshopilot020607.pdf and pay attention to page 69. This was a controlled study and it showed that there was a 2.38% drop in return for 6-months on stocks when the uptick rule was set aside. This translates into an annual drop of 4.76%. The annual return on NYSE stock investments averages 7%, so this indicates that the drop in profits is 68%. A fifth grader could predict a stock crash if investers only average 2.24% a year in returns. The SEC study predicts higher volatility. Look at page 71, and it becomes apparent that removing the uptick rule causes an increase in volatility of 16-25%. The SEC study was done in a stable market. In a down market, there is downward pressure on stocks with no compensating upward pressure. Again, take the existing stock market crash and figure that 25% of the size of the crash is due to no uptick rule. This is a no-brainer. How do you spell Trillions? There is a very strong case that could be made that the removal of the uptick rule caused several Trillion dollars in losses over the past months. The argument that removing the Uptick Rule had no effect is simply flawed. Read the SEC Pilot study at http://www.sec.gov/news/studies/2007/regshopilot020607.pdf and pay attention to page 69. This was a controlled study and it showed that there was a 2.38% drop in return for 6-months on stocks when the uptick rule was set aside. This translates into an annual drop of 4.76%. The annual return on NYSE stock investments averages 7%, so this indicates that the drop in profits is 68%. A fifth grader could predict a stock crash if investers only average 2.24% a year in returns.

The SEC study predicts higher volatility. Look at page 71, and it becomes apparent that removing the uptick rule causes an increase in volatility of 16-25%. The SEC study was done in a stable market. In a down market, there is downward pressure on stocks with no compensating upward pressure. Again, take the existing stock market crash and figure that 25% of the size of the crash is due to no uptick rule. This is a no-brainer. How do you spell Trillions?

]]> By: econ365 http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/#comment-61771 econ365 Wed, 11 Mar 2009 12:19:05 +0000 http://blogmaverick.com/?p=917#comment-61771 I agree but someone should tell Barney Frank. He is determined to bring it back into play. http://bit.ly/nFFiX I agree but someone should tell Barney Frank. He is determined to bring it back into play.

http://bit.ly/nFFiX

]]> By: Jake http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/#comment-61765 Jake Wed, 11 Mar 2009 11:38:42 +0000 http://blogmaverick.com/?p=917#comment-61765 All I know is that with the uptick rule in place the market went from 800 to 13500 in the last 20 years. Since removing the uptick the market has gone from 13500 down to 6500 in 6 months. If the uptick was of no consequence, why remove it? Why try to fix something that is not broken? I wonder how many of the officials who were in favor of removing the uptick rule are shorting stocks and laughing all the way to the bank. All I know is that with the uptick rule in place the market went from 800 to 13500 in the last 20 years. Since removing the uptick the market has gone from 13500 down to 6500 in 6 months. If the uptick was of no consequence, why remove it? Why try to fix something that is not broken? I wonder how many of the officials who were in favor of removing the uptick rule are shorting stocks and laughing all the way to the bank.

]]> By: Pete http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/#comment-61734 Pete Wed, 11 Mar 2009 02:48:34 +0000 http://blogmaverick.com/?p=917#comment-61734 I think Patrick Byrne's complaints about his company's stock being shorted had more to to with the legality of selling something you don't own. He believed people would put in lots of sell orders, but then withdraw them before being required to pass the stock to a buyer. This created the impression of many more sellers than buyers, driving down the price when in actually no transaction was taking place. I believe volatility is not a good thing for the market, and people making money holding a stock for a few hours should be seen as gamblers, not investors. I think Patrick Byrne’s complaints about his company’s stock being shorted had more to to with the legality of selling something you don’t own. He believed people would put in lots of sell orders, but then withdraw them before being required to pass the stock to a buyer. This created the impression of many more sellers than buyers, driving down the price when in actually no transaction was taking place. I believe volatility is not a good thing for the market, and people making money holding a stock for a few hours should be seen as gamblers, not investors.

]]> By: George http://blogmaverick.com/2008/12/09/we-dont-need-an-uptick-rule/#comment-61708 George Tue, 10 Mar 2009 18:12:37 +0000 http://blogmaverick.com/?p=917#comment-61708 Barney Frank states: "Mary is moving towards the uptick rule, which some people think is very important, some people think it's not important, nobody thinks it does any harm," said Frank who is Chairman of the House Financial Services Committee. "I think that will go back (into effect)." Uptick Rule on Shorting Stocks Expected to Be Restored http://www.cnbc.com/id/29616614 Barney Frank states: “Mary is moving towards the uptick rule, which some people think is very important, some people think it’s not important, nobody thinks it does any harm,” said Frank who is Chairman of the House Financial Services Committee. “I think that will go back (into effect).”

Uptick Rule on Shorting Stocks Expected to Be Restored
http://www.cnbc.com/id/29616614

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