Restore the Uptick Rule, Restore Confidence http://online.wsj.com/article/SB122878208553589809.html By CHARLES R. SCHWAB The last time the stock market suffered from extreme volatility and risk of market manipulation as severe as we are experiencing today, our grandparents' generation stepped up to the plate and instituted the uptick rule. That was 1938. For nearly 70 years average investors benefited immensely from that one simple stabilizing act. Unfortunately, in a shortsighted move, the Securities and Exchange Commission (SEC) eliminated the rule in July 2007, just as we were about to need it most. Investors have now been whipsawed by what appears to be manipulative trading, what we used to call "bear raids," which drive stock prices down without warning and at breakneck speed. Average investors feel the deck is stacked against them and are losing confidence in the markets. For the sake of our children and grandchildren, and to avoid a needless future repeat of a bad situation, it is time to restore the uptick rule. The uptick rule may seem far from a kitchen-table I agree 100% with Mr. Schwab
And neither of you are traders or have any experience with the uptick rule. Lot more manipulation with the uptick rule in place. That's why it was created in the first place, create innefficiencies for the pros to take advantage of.
Cramer deserved huge amount of credit for publicly criticizing the elimilation of uptick rule and Mr Cox "the pig". Cramer is the man!!!
What Mr. Schwab and many other uptick rule advocates, like Cramer, almost always conveniently leave out is that the retail investor had 10 to 1 overnight leverage back then. Compared to the max of 2 to 1 for the retail investor today. It was that regulatory move that had a far greater role in stabilizing things. The lack of an uptick rule was more significant then because it was used to exploit over levered retail investors. At 10 to 1 - it was a big deal. At 2 to 1 - not so much. Not enough leverage to exploit. Mr. Schwab also does not address a) the absence of "bear raids" in profitable companies like WMT and XOM b) Why is it a "bear raid" when a financial company loses 80% of its value but simply "a tough competitive environment" when a company like Sprint loses 80 to 90% of its value year on year ?
I'm sorry, but anyone who has never actually traded with the uptick rule should just stop trying to discuss the subject. Uptick rule is very exploitable, it was a great money making gimmick while it lasted. It has zero effect on the bear raids.
he also criticized reg FD. (EDIT: he also has an action alerts portfolio which is *down* over the past 6+ years since its creation). dope.
I'm sorry - but you should read a little closer. We are actually saying the same thing. When a bunch of retail investor with weak pockets were levered at 10 to 1 - a "bear raid" to produce consistently lower ticks may have got them to puke out their shares. This is the exploitation that I speak of. If the leverage is maxed at 2 to 1 - it becomes significantly harder to construct a bear raid that gets them to puke shares. Maybe the "exploitation" you speak of is tricks by market makers and specialists. In which case I agree with you - but that is far from the point brought up by the OP.