It makes about as much sense to require an uptick to go short as it would be to require a downtick to go long. The uptick rule is outdated and needs to be eliminated.
The real problem here is the way the SEC is going about this. They should just make a rule that being long stock is a function of the entire portfolio including derivatives. Synthetic stock of various types, including single stock futures, would be considered stock for uptick compliance purposes. IMHO there will be some sort of uptick rule as long as stock does not need to be borrowed until settlement. Or, in other words, as long as settlement happens as a separate "catch up" function. We have the technology to deliver borrowed stock BEFORE a short sale. That is the only way to ensure that the effectively borrowed stock during an intraday plunge is not greater than stock available for loan.
In simple English PLEASE!! IF conversions are OK to use, CAN they be used by day traders as long term bullets? Are the Pro firms going to use them for there traders??? DOES anyone out there know how firms will get around this new rule? WHAT are the options??? I know that Assent, Generic and HOLD are promising thier traders that they will have something for them by lnext week that will allow them to short on a down tick. BUt no one is talking about it. DOES anyone know whats cooking??
The latest on this topic is that SEC is getting rid of the uptick rule for the 1000 top high volume stocks altogether by end of January. If that's true then that'll be great, though it kind of contradicts SEC's reason for getting rid of bullets usage - stop bear raids. Strange reasoning.
Not that strange a reasoning if you think about it. THe larger the volume the more liquid it would take a lot more bear raiding power to crush a liquid stock.. Like IBM there are ALWAYS buyers... I think the Uptick rule would protect from a bear raid on a smaller less liquid stock. I'm sure a lot of people did not like the spankings handed to the small caps during the melt down.
http://www.sec.gov/rules/proposed/34-48709.htm#V V. Pilot Program As a part of the Commission's review of short sale regulation, we are also proposing temporary Rule 202 of Regulation SHO that would suspend, on a pilot basis, As a result, we believe it is appropriate to propose a rule that would establish procedures for a temporary suspension of the trading restrictions of the price test of the Commission's short sale rule, and any short sale price test of any exchange or national securities association, for a limited number of securities. The securities that could be included in the pilot could be comprised of a subset of the Russell 1000 index, particular, the Commission would consider including in the pilot one-third of the securities in the Russell 1000 Index.100 To select the stocks for the pilot if we were to use the Russell 1000, we would sort the Russell 1000 by While we recognize that the price of any security can be manipulated, we believe that as trading volume increases, it becomes less likely that a trader would be able to cost-effectively manipulate the price of a security.102 Further, the high levels of transparency and surveillance for actively-traded securities on exchanges and other regulated markets make it more likely that any manipulation would be detected and pursued Q. The pilot, in part, would allow the Commission to obtain data to assess whether the price test should be removed for some types of securities and to study trading behavior in the absence of the proposed bid test. After analyzing the results of the pilot, the Commission may propose that the bid test be removed for certain exchange-listed and NMS securities. Should the Commission await the results of the pilot before applying the uniform bid test to exchange-listed and Nasdaq NMS securities that may later have the bid test removed? I think we will get 300+ stocks to rage with for now...
I really hope this is true. The uptick rule is incredibly stupid. Still, 2 1/2 months without the ability to short without upticks would still suck. I don't blame the SEC for cracking down on bullets though. Allowing people to break a rule (regardless of how stupid that rule is) just because they buy bullets is pretty unfair to those who don't have access to bullets. If they just got rid of the uptick rule, we could short when we wanted and not have to waste our money on bullets either. It would also be one step closer to a "fair market" too.
I know there is a popular belief out there that eliminating the uptick rule will create a symmetric marketplace. That is *not* true! Imagine: Something horrible happens to a stock or even to the whole market and everyone long starts selling. Everyone who is not long starts selling (short) too. What are they selling? Supposedly they are selling borrowed stock, but that is *not* true! They are selling "located" stock. Location means that if there are 10,000 shares only to be borrowed anywhere in the world then an infinite number of shares can be shorted intraday-- but only 10,000 shares at a time. So, all but 10,000 shares worth of those short sales are not sales of borrowed stock but rather sales of "vapor stock". The "vapor stock" does not cause any accounting problems if all of those short sales are covered the same day, but the stock price sure does take a whack! (Those short positions that are carried are obviously forced to cover if the stock cannot actually be borrowed, essentially making them day trades as well.) As long as intraday "vapor stock" is possible then eliminating the uptick rule is a bad idea. The solution would be to create a situation in which two things hold true, making elimination of the uptick rule feasible: a) short positions can only be created when an actual loan of stock has been "locked in" -- eliminate "location" b) stock that is loaned out must be returned before ownership can be transferred Now when something horrible happens to a stock, the long sellers start selling. However, they cannot sell until they have recalled any loaned out stock per (b) above, forcing those short sellers to cover. Presumably the new owner of the stock will also sell long if the market continues to plummet, again recalling the stock if it has been loaned out in the interim, forcing yet another short seller to cover. Finally, no short seller would be able to create a position unless there is actual free stock that is not changing ownership. Practically speaking, and without an uptick rule, short sellers as a group would not be able to hold a combined position larger than the combined position of stock held by people willing to wait it out with a long position. THAT is a symmetric marketplace. Of course this requires something that does not currently exist: a real-time stock loan marketplace. Incidentally, individual investors would loan stock under this model-- not large clearing firms (etc). An individual would then earn the return on the loan and the individual would decide when to recall the stock (presumably to sell it). Short sellers would lock in a loan before selling short and be forced to cover if the stock holder decides to recall. One could envision contracts where higher interest rates are paid to borrow stock in exchange for a guarantee that it will not be recalled for a certain period of time.