SEC Considers New Uptick and Short-Selling Rules

The Securities and Exchange Commission plans to consider whether to reinstate the controversial "uptick" rule or consider other short-selling regulations at a meeting on April 8, the agency announced Friday. (Marketwatch)

The uptick rule, which was removed from the markets in July 2007, allowed short sales only if a preceding trade boosted a company's stock price.

For anybody who believes in free markets - or at least in fair markets - this is yet another illustration of how rules distort behaviour. If this new uptick rule passes then we will be back to a new bubble scenario. For fairness there should be an uptick and downtick rule. This would allow for more orderly moves in either direction. The rule is stated in terms of price movements rather than volumes so it is feasible if the price is moving downwards to do small up trades followed by large down trades. Fairly simple but obviously too fair for the SEC.

As the news item also mentions other short-selling measures this will be a political move rather than a purely technical one.