May 5, 2009
I am a firm believer of bringing back the uptick rule in order to stabilize markets when they are under extreme pressure in order to prevent the so called piling on effect. After spending 40 years in the securities business I have seen what damage can be done when this rule was relaxed and what it has prevented when it was in effect. However, there are just to many ways that the uptick rule has been and will be circumvented unless there is greater oversight. In particular, the greatest abuse seems to come from Prime Broker and Executing Broker accounts. In this scenerio customers of Prime Brokers place orders with the executing broker and never disclose that the sale they are making is actually a short sale and not a regular sale. It now becomes the obligation of the Prime Broker to deliver the securities sold to the executing broker. However, under current rules, if that delivery is not made by a certain time frame, a bookeeping entry is made where the customer account is removed of its short position and it now shows on the books of each firm as fail to receive and fail to deliver between the two firms. Cracking down on this abuse would have a far greater benefit if and when the uptick rule comes back.