Let me first qualify my post by say I am an ardent short seller. In fact I prolly make the lions share of my daily profits going short. Anyone who has read my exchanges with flytiger will know that I am against the outright banning of short selling. This being said I am however very supportive of a 'circuit breaker' type of rule. I am certain that the current proposal proably sucks, but I would have absolutely no beef with some kind of circuit breaker being created. There is no question that shit can and does get out of hand on the downside at times, hence the reason I love shorting and I find it so profitable. Without sounding cocky, it is very easy to smell the kind of fear that causes panic selling. I would like to see some good discussion here on what people would like to see in the details of a circuit breaker rule. I will post some of my thoughts a little later, gotta run right now. One thought before I go however, I would be opposed to a circuit breaker that bans shorting for an extended period ie. days. Also, I think the "bona fide hedging" exception is a load of shit. That would complicate it and make it too easy to work around, they need to keep it relatively clean and simple. I think the number 1 thing that needs to be established before they create the circuit breaker is a true and honest statement of its purpose. I believe its purpose should not be to halt the decent of a stock rather just to give all players and opportunity to retain sanity during the process. It is not shorting or selling that is the problem. It's panic, and panic is the result of lack of , or poor information. That's why they have stock halts as Red Ink mentioned. Later
I have no evidence to back up what I am going to say, just a gut feeling. Artificial limits to price discovery only make things worse. Limit up/limit down in futures contracts are ridiculous. If I want to get out of a position going against me, I should be able to get out of that position, no matter what. My feeling is that when you artificially limit price moves to make people "cool off," you actually make them panic more and the prices moves get amplified.
I absolutely agree when we are referring to just buying and selling. I would never endorse a circuit breaker that prevented longs from exiting, that is insane. I am just more for a well considered , reasonable , breaker that would just slow things a little bit when shit is in free fall. The uptick rule is a joke, and banning all shorting is totally fucking with the balance that makes mkts great. But I would be in support of something that put a short prohibition on shorts after very violent moves in order only to let things be rational. Now u must bear in mind what my idea of "short period of time" is. I am an intra-day traders and 15mins is an eternity to me lol. The only reason I am keen on this discussion is because I think that 'the powers at be' and the general public hasn't a fucking clue how the dynamic of the intra-day mkt works , and all the negativity just causes the type of witch hunt that brought about the shorting ban in the first place. Fear and ignorance breed mistrust in the system which leads to ridiculous over regulation by asshole politicos whose motivation is strictly political , not well concieved and based on fact.