"I'm sure that any decent trader would not fall for that...right? Imagine a 3 cent slippage of 2,000 shares just to try to get short...good for the Firm(s) and the "3rd party", horrible for the trader."--Don Bright Unbelievable. The product isn't even rolled out yet and you're already flaming it. I bet if it was your product it would be a "must have" trading tool. Only time will tell if it's useful or not....but if it is, I'm sure you will try to implement it into your own system.
Yes, I'm sure that what I described is not what the trading firm's are going with (yes, I am confident that even my competitors are too smart for this deal)...this is just a "plan" that I heard about, and that was offered to us....I am just making the point that traders should be sure of how anything like this is going to work. We'll see what the plan is, and if it makes sense for the traders, is legal, etc., we'll add it to our various plans (as you correctly point out). I'm sorry if it came out wrong...I didn't mean it that way...I was just a bit incredulous with a "plan" that was presented to us a couple of month's back, that's all. Don
For those of you who know me, you know I spend a lot of money on advice from very good securities lawyers. These lawyers are often former employees or heads of SEC's Enforcement Division. Given my latest foray has cost over $2k in legal fees, I am going to weigh in on the subject. It is not at all clear that using exchange-created conversions or married puts are acceptable if you are using the position to "divorce" the stock and sell a downtick. The current regulatory environment is such that SEC refuses to give guidance as to what is acceptable. I suggest everyone read the SIA's comment letter on SEC's website. Just do a search there on the words "married put." In short, contrary to what some have said here, conversions employed for the purpose of evading the uptick rule may be collapsed as sham transactions. Just because the exchange-created variety meets only some of the tests contained in the SEC Interpretive Release does not mean they are legitimate. Your intent in employing the device is important. While I think the entire SEC argument is off course here, we must all comply with the rules or challenge them in court. Each of you should be aware that SEC is currently on a tear related to short-selling. Be careful, and don't rely on your firm to tell you what is legal. I have been told that SEC plans to release information/rules regarding which stocks may be available for short-selling without an uptick within a matter of a few weeks.
did these securities lawyers make any predictions as to the fate of the firms that they perceive to be in violation?
I certainly agree with you about the "sham" reasons for acquiring stock, etc. In addition, I believe it is the "risk free" trade that has the SEC concerned. That is why we do things the way we do. As always, glad to hear your input, MR. TraderProfit Don
I doubt we will see much of any evolution in rules this year or possibly even next. This appears to be a tight political contest and no one (administrators) wishes to make any mistakes. Change will only come with dominant leadership.
While the so-called risk-free nature of a bullet transaction (it actually does have some minimal risk) is one of the elements that concerned SEC in their release, I believe the focus of the release is that traders have been using methods of evading the "uptick" rule. If you read the release there are , I believe , 6 tests or items used to determine whether a transaction is a sham. However, this list is not exclusive, nor does a transaction meeting only 5,4,3,2 ,1 or none of these tests not qualify as a sham transaction. The SIA response to the Interpretive Release correctly points out that there is no need to "test" eliminating the uptick rule as anyone who wanted to "get around" it has been able to do so for years without affecting the longest bull market in history. The SIA further points out the rule doesn't apply to those securities for which it is really needed--pink sheet stocks. SIA clearly and correctly implies the Commission has their thinking backwards. The rule is needed for illiquid stocks, not highly liquid ones. However, none of this does any good if you are charged with a violation as I guarantee that nobody on this board--including Don Bright--is going to go to court to challenge the matter. They are going to settle. Further, any attention directed by SEC to our industry is always negative and leads to more attention. While I certainly have no intention of "ratting out" fellow traders simply because I will be at a disadvantage, I encourage everyone to consider that SEC does not WANT to give guidance as to what constitutes a legitimate sale. They have proven this by not taking up the issues raised by SIA. Given the above, one must consider the risks and benefits of engaging in the use of exchange-listed conversions, married puts, slips, etc, if the intent is to sell a downtick. I guess , in the end, it's a question of how much you have now, and how much you are willing to lose. There's no way to calculate the risk since SEC won't give guidance. Finally, I am also told that there is virtually no chance that all stocks will eventually be removed from being subject to the uptick rule. Look for something from SEC in a matter of weeks.
No, there are no predictions. To bent prop, there are definitely going to be some changes regarding stocks that can be shorted without an uptick. There was a meeting in Arizona in the past two weeks that involved regulators and securities lawyers. I have been told the current climate is ominous when it comes to what we might consider non-sensical rules and over-reaching regulations. The attitude seems to be "we have the power and we are going to use it" at least when it comes to getting money out of people charged with violations. This seems to be a theme not just pervading the securities industry, but many others as well. Obviously, there are bigger fish than you and I, but I think the government makes the easiest cases first. It's human nature.
Do you guys think the reason the SEC did not makes explicit rules is that they themselves don't know how to put it in black and white or are they deliberately making it a gray area to give themselves wiggle room in the interpretation of the laws ..going forward. I say going forward because they can't really overreach and fine firms retroactively for rules that have not been clearly defined or even created yet?.. or can they?