SEC Revisits Uptick Rules

The SEC is sheepishly back-peddling on the so-called uptick rule. Controversially, this rule was axed in 2007 after 70 years on the books. Unfortunately, the axing of this rule to mitigate short selling was also the cue for the worst bear market since the Depression. The uptick rule has nothing to do with disastrous corporate earnings, so I suspect this is another straw man held up as a scapegoat. However, red faces all around the SEC.

But is the uptick rule such a good idea? Just to muddy the whole argument the SEC has put up five different proposals for a 60-day consultation period. Whatever the outcome, any rule that tips the balance of supply and demand in one direction is not part of a free and fair market. If the idea is to increase stability and decrease volatility then perhaps having both an uptick and downtick rule would make sense. But looks like we're heading back to the days when pumping up stocks for no good reason is a great idea! The nightmare scenario for US stock markets is that they start to resemble their Japanese counterparts.

There are other ways to short stocks, such as using options. The real problem is from naked short selling, where someone sells a stock they don't actually own, as this effectively increases the apparent number of shares being traded. The SEC has proved itself completely useless at being a financial watchdog. Until wholesale changes are made, expect nothing more.