The Uptick Rule
Friday, March 13, 2009 at 09:01AM Barring unforeseen calamity or luck, I plan on being a lawyer and generally like rules. They give me some range within which I can act, and more importantly, require a client to pay for the services of someone like me. To that extent I'm generally in favor of rules, I'm in favor of the uptick rule.
But has the elimination of the uptick rule really been a factor in this financial mess? Or, in the words of President Bartlett, does Wall Street believe in the phrase "post hoc, ergo propteur hoc (after it; therefore, because of it)." The phrase essentially relates to a confusion of causation, and I think that may be what's going on here.
The uptick rule requires someone that is shorting a stock (after having borrwed it) to sell the stock at a price immediately higher than t
he last sale price. That is, if you want to short GE, and it last traded at $9, you'd have to sell the borrowed stock at $9.01. That's my impression of the uptick rule at least. I say this because while Wall Street and CNBC and Jim Cramer have been railing against the elimination of the uptick rule and saying how it is the cause of our financial crisis, no one has explained what it is (except Wikipedia).
What you'll hear on CNBC:
Correlation: The SEC eliminated the uptick rule in July of 07.
Causation: Look at what has happened since
Notably, the SEC suspended the uptick rule in July of 04, and in the six month period following the suspension. the Dow rose about 300 points. Nothing incredible, but nothing shabby. If the elimination fo the uptick rule caused all this insanity, why didn't we see insanity back then? Just more proof that you should vote for President Bartlett for reelection.
Reader Comments (3)
For a guy who claims he likes rules, you sure don't seem to have much respect for copyright law.
would shorting GE (or any stock) at 9.01 really be any different than hammering the bid at 9.00. it seems there is too much liquidity for 1 cent up to make a difference.
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