April 20, 2009
Comments on S7-08-09 (Amendment to regulation SHO)
While I believe the tick test is for the most part a red herring, and the real issue allowing market-distortive short sales is a mathematically flawed regulation CFR 240.15c3-3(a)(5), if a tick test is re-introduced, it should avoid the flaws of the previous tick test, which allowed a short seller to sell 100 shares at the bid, followed by buying 100 shares at the ask in order to create an uptick, thereby allowing a short sell order of 100000 shares to beat the uptick rule for a cost of about 50 cents plus commission.
To be effective therefore, an uptick rule should stipulate that the number of shares in an executed short sale may not exceed the number bought at the previous uptick.