Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21
Dow Stock Market Trend Forecast 2021 - 3rd Apr 21
Gold Price Just Can’t Seem to Breakout - 3rd Apr 21
Stocks, Gold and the Troubling Yields - 3rd Apr 21
What can you buy with cryptocurrencies?- 3rd Apr 21
What a Long and Not so Strange Trip it’s Been for the Gold Mining Stocks - 2nd Apr 21
WD My Book DUO 28tb Unboxing - What Drives Inside the Enclosure, Reds or Blues Review - 2nd Apr 21
Markets, Mayhem and Elliott Waves - 2nd Apr 21
Gold And US Dollar Hegemony - 2nd Apr 21
What Biden’s Big Infrastructure Push Means for Silver Price - 2nd Apr 21
Stock Market Support Near $14,358 On Transportation Index Suggests Rally Will Continue - 2nd Apr 21
Crypto Mine Bitcoin With Your Gaming PC - How Much Profit after 3 Weeks with NiceHash, RTX 3080 GPU - 2nd Apr 21
UK Lockdowns Ending As Europe Continues to Die, Sweet Child O' Mine 2021 Post Pandemic Hope - 2nd Apr 21
A Climbing USDX Means Gold Investors Should Care - 1st Apr 21
How To Spot Market Boom and Bust Cycles - 1st Apr 21
What Could Slay the Stock & Gold Bulls - 1st Apr 21
Precious Metals Mining Stocks Setting Up For A Breakout Rally – Wait For Confirmation - 1st Apr 21
Fed: “We’re Not Going to Take This Punchbowl Away” - 1st Apr 21
Mining Bitcoin On My Desktop PC For 3 Weeks - How Much Crypto Profit Using RTX 3080 on NiceHash - 31st Mar 21
INFLATION - Wage Slaves vs Gold Owners - 31st Mar 21
Why It‘s Reasonable to Be Bullish Stocks and Gold - 31st Mar 21
How To Be Eligible For An E-Transfer Payday Loan? - 31st Mar 21
eXcentral Review – Trade CFDs with a Customer-Centric Broker - 31st Mar 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Short Selling Uptick Rule to Return, But Keep It Simple

Stock-Markets / US Stock Markets Mar 30, 2009 - 05:25 PM GMT

By: Frank_Holmes

Stock-Markets

Best Financial Markets Analysis ArticleIt looks like an uptick rule for short selling will soon be back in place, but let's hope it's not the version being sought by the Nasdaq and the New York Stock Exchange.

The two exchanges and others are pushing a proposal that is overloaded with conditions that must be met before a particular stock becomes subject to the rule, and even then the rule's reach would be limited.


My question is, “Why make things so complicated?” If Washington 's new leadership is serious about restoring integrity to our capital markets, it will restore the old uptick rule requiring that any short sale of a stock must follow an uptick in the share price.

Adding conditions to the uptick rule creates gray areas that will be open to interpretation and thus open to exploitation. Rogue hedge funds and other market abusers like to operate in the gray areas—we've been warning about their abusive practices for several years.

The uptick rule was created in the 1930s to protect public companies from illegal “bear raid” manipulations—groups of investors working together to make big profits by driving down a stock's price. Insightful research by the Wharton School published last year lays out how these attacks can occur.

A few years ago an SEC study determined the rule was ineffective, but many have suggested this study was flawed because it took place during a rising market with low volatility. Not in doubt, however, is that the removal of the uptick rule in July 2007 was immediately followed by an unprecedented jump in market volatility.

Especially hard hit have been financial stocks, with Bear Stearns and Lehman Brothers among the first to be dragged under by what many market commentators have described as classic “bear raid” manipulations.

Lehman shares, for example, lost 30 percent of their value in the first month after the uptick rule was shelved. In the first 10 trading days of September 2008, Lehman stock fell from over $17 to 15 cents per share, and soon it was gone. It never had a chance once it was attacked by predatory short-sellers taking advantage of the uptick rule's absence. We are fortunate that we don't own any risky derivative securities or have any debt—factors that could have exposed us to the same forces that affected Bear Stearns, Lehman and many others.

The uptick rule is not solely to blame for the stock market's huge drop and it will not cure all of the unscrupulous behavior in our stock markets.

Abusive “naked shorting”—making a short sale with no intention of locating and delivering those shares to the buyer—also should be addressed with stricter rules on both the short seller and the broker executing that sale. The SEC has recognized this as a significant problem in the market, and we have been calling for a remedy since 2007.

While the regulations are being changed, we should also do something about “empty voting”—short sellers borrowing shares of a company involved in an important shareholder vote in order to oppose management's proposals. The game: defeating ballot proposals can undermine confidence in management and drive down the stock price.

And let's not forget the FAS 157 “mark-to-market” rule, which pushed many financial companies to write off many billions of dollars worth of securities. As we've written recently, these wounded companies were easy prey for malevolent short-sellers, who pounded down their stock prices and impaired their ability to raise new capital to rebuild their balance sheets. I believe having the uptick rule in place could have changed how that scenario played out.

Oddly enough, there was no great clamor to get rid of the uptick rule in the first place. Not oddly, those arguing loudest against restoring it are hedge fund managers who have been the main beneficiaries of its absence.

Regulators surely had good intentions when they suspended the uptick rule, but there were unforeseen consequences. Now they should learn from the experience and make appropriate changes before more companies are needlessly destroyed.

Bottom line—bring back the uptick rule as it was prior to July 2007. That's the simple and straightforward solution, not to mention a good first step toward more effective market regulation.

By Frank Holmes, CEO , U.S. Global Investors

Frank Holmes is CEO and chief investment officer at U.S. Global Investors , a Texas-based investment adviser that specializes in natural resources, emerging markets and global infrastructure. The company's 13 mutual funds include the Global Resources Fund (PSPFX) , Gold and Precious Metals Fund (USERX) and Global MegaTrends Fund (MEGAX) .

More timely commentary from Frank Holmes is available in his investment blog, “Frank Talk”: www.usfunds.com/franktalk .

Please consider carefully the fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Gold funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The price of gold is subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in gold or gold stocks. The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 12-31-07 : streetTRACKS Gold Trust.

Frank Holmes Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules