April 8, 2009
Thank you for considering the up-tick rule, but in reality short selling should abandoned completely. Think about the definition: In a short sale, an investor borrows stock and sells it in the hope that its price will fall. If the price does drop, the seller profits by buying the stock back at the lower price and returning the borrowed shares.
Now apply that same wording to real world buying and selling. Replace the word "stock" with any other item, let's say "CAR"...and consider the insanity of it:
...you borrow a CAR and then sell it in the hope that its price will fall. If the price does drop, you profit by buying the CAR back at the lower price and returning the car to the original owner... Insanity.
How would this fly in the real market place? Frankly, it would probably be illegal. The rule should be restricted to say that you must TAKE LEGAL POSSESSION of an item before selling it. My 401k manager builds in a week long delay. That would slow things quite a bit.
And while you're at it, how about eliminating or slowing computerized trading, where competing computer programs battle it out buying and selling mega-shares, while the individual investor is also trying to survive in the midst of this frenzy. The rapid fire, rapid response program trading introduces instability. Ask any specialist in system control theory.
Back to basics!