From what I read this only affects "non-standardized" options, the kind bullets are made of. Unless I am missing something... it means exchange traded option positions (e.g. conversions and married puts) are perfectly fine. This is forward progress for the market place, bullets should have been shut down long ago. ************************************** From the SEC website... "We are issuing this guidance to address married puts that are used as part of an attempt to create a "long" position for the purpose of circumventing Rules 10a-1 and 105.15 Such transactions usually have some or all of the following characteristics (or a variation of them): the purchase of an at- or in-the-money non-standardized put option with a brief (1 to 5 day) expiration period,..."
anybody remember those guys who shorted more shares than the total float? LTV stock. They made 22mill and the exchange tried to bust them but lost in court.
I don't know the case, but sounds like those guys could also have gotten creamed! Must've been one thin stock though.
Looks like the SEC is experimenting with dropping the uptick rule for 300 stocks in 2004. If that goes well they may get rid of the rule altogether. http://www.thestreet.com/p/_tsc/rmoney/davebaker/10127908.html (need subscription) "In 2004, the SEC plans to remove the so-called tick-test/bid-test rule from 300 stocks, which will allow these names (they haven't been identified yet) to be shorted without a downtick in price. This will be a test to see how things operate. The SEC will measure the performance and volatility of the stocks in question. " "Many years ago, Japan didn't have an uptick rule. Once it was put into place, the market finally drifted higher. We can only wonder how removing the rule will affect stocks here."
Ha! ``If that goes well...'' Of course it will go well unless someone schedules a market collapse to take place during the trial period. This is not something that can be experimented with-- if they are going to remove the rule then they need to prove through economic theory that it will work in all situations. IMHO the only way it will work is to require a locked in borrow prior to a short sale.
osx, I agree with you that mechanisms must be in place to insure that only available borrowed stock be shorted and no more than that under any circumstances. Frankly, I just assumed those mechanisms were already in place (I admit I have a limited knowledge of the clearing process). I also realize that illiquid stocks require more regulation to ensure a somewhat normal order flow and to prevent manipulation. My argument in favor of abolishing the uptick rule was meant for liquid stocks. Nobody can schedule a significant collapse on MSFT or INTC or GE or any stock like that. Period. They're just too liquid. Assuming there is enough available shortable stock (which I strongly suspect is not an issue for stocks that aren't on the hard to borrow list), there is no good reason that the uptick rule should exist at all.
Short and Long should keep the markets fairly valued, this is truth for liquid and illiquid stocks. If a illiquid stock is bair raided and pushed to to levels were they become cheap there will be plenty of money to start supporting the prices of these illiquid stocks. just my opinion....
the uptick rule is protectionism just like the steel tariffs and china import caps, not an accounting error as osx suggests. excessive naked shorting is illegal and so are other bad things and that's why they aren't considered as part of legitimate discussion on regulations. the bottom line is that the only difference between going short with or without delivery is a piece of paper. you are still just as short one way or the other, provided you are within the bounds of the law.
Today's system without an uptick rule would allow for there to be more *intraday* short interest than there are issued shares of MSFT -- much more. "Location" won't stop it, "not hard to borrow" won't stop it, nothing will stop it other than the uptick rule. For example, every Microsoft office everywhere gets nuked by some Linux fanatic. My point is that all of those offices will probably not get nuked during the trial period of eliminating the uptick rule for liquid stocks... so the regulators will pat themselves on the backs and say that the market is taking care of itself. All the while there will be this lurking possibility of massive short-side abuse during really exceptional circumstances. The market *can* take care of itself, and we do *not* need an uptick rule. But we do need to ensure that short interest can't ever be greater than "hold interest"... the way to do that is to lock in a borrow before each and every short sale.