Comments on: SEC Studies Restoring Uptick Rule That Could Have Mitigated Bear Market in U.S. Stocks http://www.moneymorning.com/2009/05/04/uptick-rule/ Investment News Provider Thu, 19 Nov 2009 15:36:16 -0600 http://wordpress.org/?v=2.8.4 hourly 1 By: Three Dividend Plays That Can Offer Stability in the Face of Uncertain Financial Markets http://www.moneymorning.com/2009/05/04/uptick-rule/comment-page-1/#comment-22326 Three Dividend Plays That Can Offer Stability in the Face of Uncertain Financial Markets Thu, 21 May 2009 10:01:03 +0000 http://www.moneymorning.com/?p=7175#comment-22326 [...] had a hearing and ruled unanimously in favor of reinstating five rules against short selling following the guidelines of the former “Uptick Rule.”  This ruling is important to the Big Board’s growth because short sellers helped [...] [...] had a hearing and ruled unanimously in favor of reinstating five rules against short selling following the guidelines of the former “Uptick Rule.”  This ruling is important to the Big Board’s growth because short sellers helped [...]

]]> By: Big D http://www.moneymorning.com/2009/05/04/uptick-rule/comment-page-1/#comment-22076 Big D Thu, 14 May 2009 14:21:52 +0000 http://www.moneymorning.com/?p=7175#comment-22076 "some believe could have mitigated the bear market" "Some" believe a lot of things that aren't true. There is a lot of whining about "bear raids" and "abusive short selling" but no actual evidence of anything happening that's harmful. Agree with truth that more harm comes from pump & dump. Most people who are complaining about shorting probably are talking their book, not public policy “some believe could have mitigated the bear market”

“Some” believe a lot of things that aren’t true.

There is a lot of whining about “bear raids” and “abusive short selling” but no actual evidence of anything happening that’s harmful. Agree with truth that more harm comes from pump & dump. Most people who are complaining about shorting probably are talking their book, not public policy

]]> By: B Sruthers http://www.moneymorning.com/2009/05/04/uptick-rule/comment-page-1/#comment-21588 B Sruthers Tue, 05 May 2009 18:39:01 +0000 http://www.moneymorning.com/?p=7175#comment-21588 Jonathon - well put. Focus needs to be on the underlying issue. Jonathon – well put. Focus needs to be on the underlying issue.

]]> By: The Truth http://www.moneymorning.com/2009/05/04/uptick-rule/comment-page-1/#comment-21522 The Truth Tue, 05 May 2009 01:00:43 +0000 http://www.moneymorning.com/?p=7175#comment-21522 We need a downtick rule too. Why is no one concerned about manipulative pump & dumps by insiders, institutions & government? Some sheeple never learn. We need a downtick rule too. Why is no one concerned about manipulative pump & dumps by insiders, institutions & government? Some sheeple never learn.

]]> By: Jonathan Johnson http://www.moneymorning.com/2009/05/04/uptick-rule/comment-page-1/#comment-21477 Jonathan Johnson Mon, 04 May 2009 13:38:22 +0000 http://www.moneymorning.com/?p=7175#comment-21477 Dear Mr. Biancuzzo: I believe the SEC’s renewed focus on the reinstatement of an uptick rule is misguided. Any reinstatement of an uptick rule (whether the previous one or some modified version) is like putting a band-aid on a cut when the underlying problem is a broken arm. An uptick rule may slow manipulative bear raids (but not by much, since a manipulative trader can easily create an uptick), but it will not stop or detect them. What needs to be done is to set the broken bone and put a cast on the arm. Only when a pre-borrow requirement (as proposed by Senator Kaufman and others in S. 605) is put in place will there be a real stop to the manipulative trading that is done through naked short selling. I suggest that you read and write about the “The Impact of a Pre-Borrow Requirement for Short Sales On Failures-to-Deliver and Market Liquidity” study by Robert J. Shapiro (scheduled to be a panelist at the SEC's May 5 roundtable on the uptick rule) and Nam D. Pham which makes a very strong case for a pre-borrow requirement. Among the findings in the study are: 1. Naked short selling and the resultant failures-to-deliver contributed to the unmanaged and widely disruptive collapse of Bear Stearns and Lehman Brothers collapse of Bear Stearns and Lehman Brothers. 2. Current regulation has not stemmed failures-to-deliver in meaningful ways. 3. Naked short sales increased volatility in stock returns without producing more efficient prices. 4. Strict regulation of short sales in financial firms, including a pre-borrow rule, did not impair market liquidity. 5. A pre-borrow requirement for short sales would not damage market liquidity. 6. Application of a pre-borrow requirement would not entail additional costs for short sellers. 7. New regulation of short sales, including a pre-borrow requirement, should be able to effectively control naked short sales and failures-to-deliver at no appreciable cost to the liquidity or efficiency. A pre-borrow requirement is the best way to finally stop naked short selling. During the fourth quarter of 2008 (post Regulation 204T), the reported average monthly failures-to-deliver continued to be in excess of 500 million shares (or greater than 5% of the average trading volume during the period) and have an average monthly mark-to-market value in excess of $1.8 billion. While the SEC has made welcomed progress with regard to curbing manipulative naked short selling, it has not yet solved the problem – particularly since failures-to-deliver that occur outside the DTCC’s Continuous Net Settlement system are not yet included in the data reported by the SEC and used by the exchanges to compile their Regulation SHO threshold lists. Regards, Jonathan Johnson Dear Mr. Biancuzzo:

I believe the SEC’s renewed focus on the reinstatement of an uptick rule is misguided. Any reinstatement of an uptick rule (whether the previous one or some modified version) is like putting a band-aid on a cut when the underlying problem is a broken arm. An uptick rule may slow manipulative bear raids (but not by much, since a manipulative trader can easily create an uptick), but it will not stop or detect them. What needs to be done is to set the broken bone and put a cast on the arm. Only when a pre-borrow requirement (as proposed by Senator Kaufman and others in S. 605) is put in place will there be a real stop to the manipulative trading that is done through naked short selling.

I suggest that you read and write about the “The Impact of a Pre-Borrow Requirement for Short Sales On Failures-to-Deliver and Market Liquidity” study by Robert J. Shapiro (scheduled to be a panelist at the SEC’s May 5 roundtable on the uptick rule) and Nam D. Pham which makes a very strong case for a pre-borrow requirement. Among the findings in the study are:

1. Naked short selling and the resultant failures-to-deliver contributed to the unmanaged and widely disruptive collapse of Bear Stearns and Lehman Brothers collapse of Bear Stearns and Lehman Brothers.
2. Current regulation has not stemmed failures-to-deliver in meaningful ways.
3. Naked short sales increased volatility in stock returns without producing more efficient prices.
4. Strict regulation of short sales in financial firms, including a pre-borrow rule, did not impair market liquidity.
5. A pre-borrow requirement for short sales would not damage market liquidity.
6. Application of a pre-borrow requirement would not entail additional costs for short sellers.
7. New regulation of short sales, including a pre-borrow requirement, should be able to effectively control naked short sales and failures-to-deliver at no appreciable cost to the liquidity or efficiency.

A pre-borrow requirement is the best way to finally stop naked short selling. During the fourth quarter of 2008 (post Regulation 204T), the reported average monthly failures-to-deliver continued to be in excess of 500 million shares (or greater than 5% of the average trading volume during the period) and have an average monthly mark-to-market value in excess of $1.8 billion. While the SEC has made welcomed progress with regard to curbing manipulative naked short selling, it has not yet solved the problem – particularly since failures-to-deliver that occur outside the DTCC’s Continuous Net Settlement system are not yet included in the data reported by the SEC and used by the exchanges to compile their Regulation SHO threshold lists.

Regards,

Jonathan Johnson

]]>