April 7, 2009
QUESTION
I'm concerned about the widespread worry about the uptick rule, especially the comments by Rep Barney Frank. My concern is that Rep Frank does not understand the difference between covered shorting and naked shorting.
As a small trader, the elimination of the uptick rule puts me on a slightly more even basis with the market makers.
The uptick rule applies to COVERED shorting. In other words, when a trader shorts a stock, he or she can only do so after his broker borrows shares to cover that short. Day-trading platforms show the amount of stock the broker has available to borrow, so that the trader can go short. If none available, the trader CANNOT go short!
The naked shorting that was in the news a while back, was due to institutions shorting HUGE blocks of stock, without borrowing or being covered at all. It was clearly illegal, and the SEC looked the other way.
The point is, that institutional naked shorting had absolutely nothing to do with the uptick rule.
GM, AIG, and C and other banks lost billions of dollars, they're really bankrupt! Short selling did not destroy these companies; they destroyed themselves. To blame short sellers is silly and is really an attempt to shift the blame.