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The Uptick Rule: Nice Knowing You at Trader’s Narrative

The Uptick Rule: Nice Knowing You

In this quiet, shortened trading week, something historic will happen. As of today, July 3rd 2007 the ‘uptick’ rule will be eliminated.

If you’re new to all this, the uptick rule limits how a trader can sell a stock short. The rule only allowed short selling when the last bid wasn’t lower than the previous inside bid (Nasdaq) or for the NYSE, an uptick or zero plus tick. The intention of the rule was to prevent someone leaning into a stock and just hammering away at every single bid.

This was a rule that came about after the public uproar over the great bear market of the late 1920’s. It has been in effect since the SEC Act of 1934. This act not only brought about sweeping changes to the US financial markets, it established the SEC as the defacto guardians entrusted with policing the hobbled stock market.

A lot of good was done in the SEC Act of 1934. Pretty much everything we are now familiar with, from IPO’s, annual reports, quarterly statements, etc. all are thanks to it. But I am glad the uptick rule was thrown away.

It’s not like it was really accomplishing anything. For a long, long time now people have been getting around it. First using ‘bullets’ (or married puts) and then using single stock futures. Thanks to the ever changing landscape and the indefatigable creativity on Wall Street the uptick rule became the vermiform appendix of the financial markets.

If you want the complete lowdown, read the SEC ruling in full (pdf)

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6 Responses to “The Uptick Rule: Nice Knowing You”  

  1. 1 Dan Davids

    Short sellers will now destoy the country. What kind of idiots are at the SEC?

  2. 2 chris

    your an idiot

  3. 3 Grammar Police

    If you’re going to call people names, Chris, the least you could do would be to make sure your insults are grammatically correct. The conjunction of ‘you’ and ‘are’ is ‘you’re’ not ‘your’. Get it?

  4. 4 Scoad

    I prefer “yer” for all usages,

  5. 5 RESTIFF

    The up-tic rule is the best thing for the average investor. It should appy to the entire market, not just shorts. There should be a big out cry to get this done. It would save the average investor a lot os money and be good for the market investor. A retired Registive Rep, RE STiff

  6. 6 jr

    We should all be screaming to our congressmen, “Why hasn’t the uptick rule and its put-back provisions been restored yet?” Is the SEC waiting until all the horses are out of the barn before they close this door? Short traders have made billions and billions shorting stocks in your 401k’s and mutual funds, many doing so with naked trades. I realized Cox wasn’t going to do anything (it was his crew that opened it up), but what about Shapiro, what’s she waiting for??????

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