February 20, 2010
Please restore the original "uptick rule" as implemented in 1938. This rule, rather than a circuit breaker, is a better method of limiting abusive short sales. Placing an arbitrary loss of 10% does our companies and our economy a great disservice. Who are we to determine what "percentage drop" is acceptable to the employees, their families and the shareholders of our public companies. What the market needs is balance. By shorting a stock on an uptick you are making a conscience "investment" decision to go against the market. This creates a balance to the overall markets.
The repeal of this rule and its unintended consequences are at minimum a factor in our long running recession. Many people fail to realize that the price of a stock has huge implications for the creation of jobs, benefits and economic expansion. Short selling, while an important balance to the market, facilitates none of the above benefits.
If a company proves to be a scam than no 10% loss protection should be afforded them. On the other hand, if a company seriously misses earnings the crippling effect of sellers and shorts lining up against long investors is an unfair short-term advantage that, in the end, creates not a single job. We need to get serious about this issue. Has anyone modeled the tick-by-tick disaster of the October 2008 crash? How many short sales were hitting stocks during margin calls? Were the short sellers simply lining up with the forced sellers to take the share prices down to artificially low levels?
Finally, I ask that someone show a single dollar of benefit to the 2007 repeal of this rule. I firmly believe that a thorough review will indeed show the short sellers lining up with the forced sellers. The net effect, if true, is of course massive layoffs, prolonged unemployment and a recession that has cost the american people millions of jobs and trillions of dollars in wasted stimulus.
We are in a new global economy. The repeal of the uptick rule has created an artificially weak asset price that has been exploited by foreign players. China has used our dollars to lock up massive resources purchased at "fire sale" prices. Volatility is a traders dream and a taxpayers nightmare. If you controlled a teachers pension fund would you invest in a market where a General Electric can log a $5 price in the same year as a $30 price? Of course not.
Thank you for your consideration. Our future very much depends on your decision. I might also suggest you read the letter written by former SEC Chairman Cox who, on January 20, 2009 sent a letter on his stationary stating that the repeal was probably not the best of ideas.