uptick rule

Discussion in 'Trading' started by praetorian2, Oct 3, 2001.

  1. 07:22 ET SEC Rules : Wall St Journal reports that despite pressure to tighten short-selling rules, SEC will actually ease the rules by throwing out the "uptick" rule which states that a short sale can only occur on an uptick in the share price.

    I just saw this on briefing.com. I don't have a wsj subscription... Does anyone have the article, or know the jist of this... When if ever does this take effect...... etc... Much thanx
     
  2. Bryan Roberts

    Bryan Roberts Guest

    hey....this is big...anyone read this article, i'd love to find out more about this!!!!
     
  3. Satan

    Satan

    any idea when it goes into effect? assuming it actually goes through..
     
  4. SEC May Propose Easing Some Rules
    Restricting the Short Selling of Stocks
    By MICHAEL SCHROEDER
    Staff Reporter of THE WALL STREET JOURNAL

    WASHINGTON -- Federal stock regulators, bucking recent pressure to tighten limits on short selling, instead are expected to propose a plan to ease shorting restrictions for big stocks.

    For the past two years, the Securities and Exchange Commission has considered rule changes governing short selling -- a legitimate way to bet against the market, in which an investor borrows stock from a broker, sells it and hopes to buy it back later at a lower price. For decades, companies have complained that some short-sellers improperly profit by ganging up to drive down stock prices. The issue is more sensitive now, as regulators investigate whether anyone profited before the Sept. 11 terrorist attacks by short selling stocks.

    Short selling in a stock is barred when the most recent trade was a price drop. The SEC is expected to propose throwing out this "uptick" rule. Instead, the SEC is likely to adopt a new standard saying that short selling can occur only when the latest best bid, or offer to buy a stock, is an increase from the previous best-bid price.

    The SEC believes the change will give short sellers more flexibility. That is because such a "bid test" won't trigger short-selling bans as often as the uptick rule does, but still will prevent manipulation. This standard is part of a separate short-sale rule adopted by the National Association of Securities Dealers, which operates the Nasdaq Stock Market.

    The move comes as the regulators investigate trading in stocks and bonds before Sept. 11. The SEC sent a letter to brokerage firms in the U.S. and Canada asking for details of the trading patterns in 38 stocks. The SEC is hoping to find any unusual trading patterns, particularly any "negative trading" including short selling. The companies on the list include obvious names such as airlines and financial firms, whose stocks have been severely depressed since the attacks, but also other stocks such as Lone Star Technologies, Carnival Corp. and LTV Corp. The SEC declined to comment.

    Since the disaster, the SEC has resisted numerous requests to slap restrictions on short selling as a strategy to moderate plunges in the stock prices, particularly in industries most affected by the attack. In a Sept. 24 letter, New York Rep. John LaFalce, ranking Democrat on the Financial Services Committee, ordered the SEC to study the effect short selling has had on recent steep stock-price declines.

    The agency is expected before year-end to propose lifting short-selling restrictions -- at least temporarily -- for about 100 to 150 of the most actively traded stocks on the exchanges, according to people with knowledge of the proposals, including bellwethers such as General Electric Co. and Microsoft Corp. One reason is that high-volume stocks are difficult to manipulate. For other stocks, the SEC is expected to propose changing the uptick formula for determining when short selling is prohibited.

    The SEC staff was ready to offer its proposals about three months ago, but held off until Harvey Pitt became chairman in August. While Mr. Pitt hasn't commented on overhauling the Depression-era short-selling rules, he told lawmakers at his confirmation hearing that updating securities regulations is a top priority.

    In asking for industry comment back in October 1999, the SEC noted that short selling could have the positive effect of adjusting stock prices to proper levels. On the other hand, the agency said it would guard against deregulation that could spur speculation, make prices more volatile or lead to abusive practices or manipulation. Another factor in the SEC's move is the recent shift to trading in penny increments, rather than eighths, or 12.5 cents, according to people with knowledge of the proposals. Under current short-selling rules, a series of penny-price declines can delay traders who need to sell short to hedge other positions, some say.

    Mary Bender, chief regulatory officer at the Chicago Board Options Exchange, said SEC staff told her last month the agency is "looking for a rule proposal to come out this fall where they would be making several proposed modifications to the short-sale rule."

    The SEC is under pressure to act quickly because of the scheduled Dec. 21 introduction in the U.S. of "single-stock futures," which will be pegged to many of the largest and most actively traded exchange stocks. With these risky contracts, investors commit to buying or selling securities at a set price on a certain date. Their leverage could attract smaller traders, who could buy a larger number of single-stock futures with a smaller amount of money upfront. But if investors make the wrong bet on the direction of a stock price, losses could be large.

    Last year, Congress lifted the ban on single-stock futures. Because the new investments have no short-selling restrictions, the SEC is concerned that brokers could steer investors to single-stock futures to sidestep short-selling restrictions that apply to the same stocks traded on the exchanges. That is why the SEC intends to put in place a pilot program by about Dec. 21 to lift short-selling bans on only the largest and most actively traded stocks, according to people familiar with the proposal. The SEC "is worried about regulatory arbitrage" and traders taking advantage of artificial price differences, one of these people said.

    Introducing the proposals soon is important because the SEC must seek public comment for at least 30 days before the commissioners may approve changes.

    http://interactive.wsj.com/articles/SB1002059158116839560.htm
     
  5. Bryan Roberts

    Bryan Roberts Guest

    thanks tradewinds!!!!!!!!!!:)
     
  6. Eugene

    Eugene

    This has to do with only one thing, competition!. the NYSE and NAS are afraid of loosing big to the new SSF. They need to give incentives for traders to stay and play in their sandbox.

    This should be interesting. SSF must have some liquidity ready if they are willing to get rid of the uptick rule.
     
  7. def

    def Interactive Brokers

  8. "Introducing the proposals soon is important because the SEC must seek public comment for at least 30 days before the commissioners may approve changes. "

    Does this mean we should write to SEC to show our support for the new proposal?
     
  9. Fohat

    Fohat

    SEC has no choice, it is afraid stock exchanges may loose big to SSF. Especially after punishing smaller traders with approving the controversial 25k rule.
    "Their leverage could attract smaller traders, who could buy a larger number of single-stock futures with a smaller amount of money upfront. "

    "Because the new investments have no short-selling restrictions, the SEC is concerned that brokers could steer investors to single-stock futures "
     
  10. rpc

    rpc

    Does anyone know what exchange these SSF's will be trading on?

    RPC
     
    #10     Oct 3, 2001