Google "Uptick Rule". How does/might this figure in to what has been

[Mind_your_head]

going on in the financial world these past few weeks?

Thanks.

Not a "financial person",
M_Y_H

[quiet.american]

1. SEC Chairman swears abolishing the uptick rule had no effect on the market.

As the saying goes, who are you going to believe -- me, or your lying eyes. I don't claim to be a master of the market, I'm still a student of it, but common sense says that abolishing the uptick rule made it very, very easy to run financial stocks into the ground. No doubt you've run across it in Googling; the Wikipedia entry pretty much says it all:

http://en.wikipedia.org/wiki/Uptick

The uptick rule is a securities trading rule used to regulate short selling in financial markets. The rule mandates, subject to certain exceptions, that when sold, a listed security must either be sold short at a price above the price at which the immediately preceding sale was effected, or at the last sale price if it is higher than the last different price. In 1938, the SEC adopted the uptick rule, more formally known as rule 10a-1, after conducting an inquiry into the effects of concentrated short selling during the market break of 1937. <1>

The NASD and Nasdaq adopted their own short sale price tests based on the last bid rather than on the last reported sale.<2>


Elimination
The SEC eliminated the uptick rule on July 6, 2007.<3> The elimination of the rule was preceded by a SEC order, placed on July 28, 2004, to create a one-year pilot temporarily suspending the uptick rule on select securities. The purpose of the suspension was so that the commission could study the effectiveness of the rule. The SEC's Office of Economic Analysis and academic researchers provided the SEC with analysis of the data obtained during the pilot. The general consensus was against the uptick rule, with the commission concluding that the uptick rule "modestly reduce liquidity and do not appear necessary to prevent manipulation."<2>

The rule was originally put in place to avoid the perpetration of a financial crime known as a bear raid. However, short sellers themselves viewed the rule as "largely symbolic" and having little actual effect on short selling.<4>


Criticism
On July 3, 2008 Wachtell, Lipton, Rosen & Katz, an adviser on mergers and acquisitions, said short-selling was at record levels and asked the SEC to take urgent action and reinstate the 70-year-old uptick rule.<5>

On the March 20, 2008 episode of Mad Money, Jim Cramer launched his campaign to reinstate the uptick rule.<6> Citing the wild swings of the market since its elimination, Cramer said that the SEC eliminated the rule during a bull market, when liquidity was not a problem. Cramer believes that, without the uptick rule in place, short sellers are devaluing perfectly solid stocks.

[stillcool]

2. Jeez...that was a 'duh' moment...

I hope you get some answers by those with finance knowledge.



A former rule established by the SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines. The SEC eliminated the rule on July 6, 2007.
http://www.investopedia.com/terms/u/uptickrule.asp

Rule change may be adding to volatility
Posted 8/9/2007 4:39
http://www.usatoday.com/money/markets/2007-08-09-volatility_N.htm
By Emily Chasan, Reuters
NEW YORK — A rule change that has made it easier for short sellers to execute trades may be partially responsible for wild swings in the stock market over the last several weeks.

The CBOE volatility index, known as the market's fear gauge, hit a four-year high Thursday.

While the market is also facing considerable headwind from uncertainty over the housing market and the economy, the removal of the restrictive "uptick rule" for short sellers, may be accelerating market declines, analysts say.

"The market move was not caused by the rule change, but there is little doubt that it made the slide occur faster than it might otherwise," Gregory Drahuschak, vice president of Janney Montgomery Scott, wrote in a note to clients this week. "Increased volatility is here to stay as long as the new regulation remains."

[Mind_your_head]

3. I heard someone mention it today in brief (but passionate) discourse

about this 'bailout' and I was like, "What's that"? So after googling......it made me go "hmmmmmmm".

Thanks for bothering to look it up too!

I hope now that we know a little bit more of 'what it is' and that it was put in place after the crash of 1929, and then remained in place for well over 70 years (until July 6, 2007). Then slightly less than one year later (on July 3, 2008) a company well versed in mergers and acquisitions requested that the SEC reinstate the rule (which the SEC did not do).

I hope more knowledgeable people will chime in here and shed some light on how this factors into what is going on in today's financial market world.

Thanks,
M_Y_H