Thank you for illuminating the opposite side for me, I sometimes get a little carried away.... I believe we both know that nothing in this world is absolutely right or absolutely wrong. But to get back to the topic of this thread: IMO anonymity will always be a part of trading in one way or the other so I decided not to worry about it too much. On the other hand, I think anything that takes away liquidity from the market, like pattern daytrader rules or off-floor option traders rules, even the uptick rule hurts everyone in the long run. But again, that is only my view. One question I do have for you though: How exactly do you think does the uptick rule benefit anyone, and how effective do you think it is? I would say all it does is restrict short scalping to those who can circumvent the uptick rule (who probably do the vast majority of volume anyway).
<i>By favouring complete freedom of information they favour daytraders etc. Who would want to be a market maker then? </i> Since 90+% of day traders are losing money I doubt they are worried. It seems that they would be happy to trade against someone losing money. btw, the uptick rule blows goats, imo. Having the capital necessary to structure enough options positions to have a bunch of stocks available to down tick short is rarely possible for an individual trader. I would hope that the days of the uptick rule are numbered.
The rewards of a competitive market (tight spreads) benefit day traders, position & swing traders, investors, anyone who actually buys or sells (unless your trying to trade the spread). An inefficient market benefits the MM's & specialists who have special powers to create and exploit the inefficiencies. I postulate that the markets would be just as orderly if all the order flow went straight through ECN type networks and were matched Island style. There would be exactly the same volume with retail & institutional order flow bypassing the middlemen and going directly to the exchange network. When bad news comes out, the bids would drop to a point where buyers agree it's a good buy and therefore liquidity would remain stable with price being the variable. I believe its a myth to think a specialist or MM actually puts his money on the line to keep a stock from falling--I contend he finds volume support and moves his bid right in front of it. He may put his money on the line in speculation, or symbolically to meet exchange rules, but he's not going to jump up and tell Joe retail, "I'll gladly take your shares so you don't lose as much, that's what I'm here for!" No, he drops his bid faster than you can blink right down to the point where orders are confluencing, and turns into the "Good Samaritan" again. I believe, just like everything else involving trillions of dollars, that creating a true, free, competitive financial market will be as improbable as getting the mob out of organized crime and into selling Mary Kay.
The uptick rule. When I first got into US stocks this seemed like a really silly rule. However I would rather have this than the solution to unfettered speculation that our govt in the UK has: stamp duty. Now watch all us limeys on the board groan. Imagine this: For every purchase of shares you must hand over around 0.5% of the value of those shares to the grateful government. So you buy, what $50,000 worth of shares. This transaction costs you a whopping $250. Then there is commission. Lower economies of scale (smaller population) dictates that the same US brokerages have UK outlets that charge much higher fees. Even with IB this would cost you another $50! Perhaps I got a little off subject, probably the reason for the uptick rule is that it is a simple solution that some politician somewhere liked the idea of and that his electorate could understand. In any case since time began no one has liked short sellers with their "squinty untrustworthy eyes" !!! (Jesse Livermore quote, I think?)
The uptick rule was originally implemented to prevent the floor tactic of "bear raids" of the 1920s where a stock's price was driven down to nothing so a majority stake of the company could then be bought cheaply. Given our modern day market, a "bear raid" is a thing of the past that we no longer need worry about preventing. The uptick rule is a relic. I had no idea the UK was so prohibitive with their taxes. If they eliminated that tax (the $250 you talk about would be less than $1 here), they would benefit from a higher volume market with lower spreads that more easily attracted companies wanting to issue shares. If the volume goes up, the gov't can charge a lower fee and still make their money. It sounds like another example of authoritative ignorance like the Pattern Day Trader rule in the US.
great thread, folks! are you sure? it is still a fact of life that stock prices drop much faster than they recover. just do a scan for stocks that have moved 10% in one hour -- you'll see that the vast majority of these moves have been downward. and, no, it's not because of the current bear market: i have a bunch of CD-s with january 2000 T&S data next to me to confirm this. therefore theoretically it would make sense to prevent market manipulation by large scale shorting. however, in practice the uptick rule merely limits the use of such tactics to traders with access to bullets, me thinks, so it's not that effective after all. --- now, re the SM: call me naive but - from that presentation - i really don't see how it would have an adverse effect on retail trading. anonymous bids/offers? hello, when did you see a name attached to a bid/offer on ISLD or ARCA? reserve size? i'm not sure but i've led to believe that most ECN-s offer that already. having said that, i admit that anything that hurts ECN-s will potentially hurt retail trading, because we rely on ECN-s to broadcast our bids and offers to the rest of the world. - jaan
<i>it would make sense to prevent market manipulation by large scale shorting</i> You have the right to open as large of a short position as your pockets can afford, provided the shares are available. No one has deep enough pockets to "manipulate" the market in a liquid stock for very long. Eventually they have to cover, and the downward pressure of the short sale is offset by buying to close the position.
I don't know whether or not there are market participants with enough capital to crush the stock price, but I do know that if there are such participants, they certainly have access to workarounds using options etc.
nono, from what i've read, the purpose of the uptick rule was to prevent the following manipulation: you take a weak and illiquid stock, short the hell out of it, naturally bringing the price down, and then use the fact that the price recovery process will be slower (because everybody will be cautious to enter the stock that just got hammered) to cover at lower average price than your short entry. whether that works in real life, i don't know, but i guess so (for example, look at MIMS on jan 30). whether the uptick rule prevents this scenario from happening, i pretty much doubt. - jaan
There is no "fact" about the recovery process. If one large seller manages to push the price down by shorting, there is no rule that says the price will not go up as fast or faster than it dropped when the position is covered. If one entity is trading against the flow to short they may end up trading with the flow while covering and pushing the price up twice as far. Rule 10a-1 of the 1934 Act: http://www.law.uc.edu/CCL/34ActRls/rule10a-1.html They don't state exactly what the purpose was. "To prevent Bear Raids" was a correct answer on the Series #7.