May 26, 2009
The removal of the Uptick Rule designed in 1930's to prevent bear raids on corporations worked beautifully for over 70 years, preventing the kinds of disastrous market declines experienced in late '29. The removal of the rule in July 2007 - less than two weeks from the first top in the SP500 - precipitated a faster decline in the markets over a shorter period of time than was experienced during the Great Crash in 29. Interestingly, the change in the market to market accounting rules, also in place since the 30s, followed the SP500 double top in Oct 2007.
How can one not notice the correlation to the downside volatility and these rule changes? Is this all just a coincidence? One look at the chart of the VIX with correlation to SP500 declines and these rule changes is unmistakable. These rule changes had a detrimental affect on the market. Of course they did not "cause" the market to fall, but they (along with naked shorting) rapidly accentuated the decline caused by the housing/financial crisis.
The pilot study performed to validate the removal of the Uptick Rule was only performed during the latest bull market, for a few years and with select stocks. The study with the rule in place was a historical account during bull and bear markets with varying market conditions for over 70 years.
The wealth destruction to the average working family has been tremendous and irreparable over the past year and a half. Investors have lost over a decades worth of their savings and have relegated the stock market to a form of gambling – not investing for the long term.
As an intraday equity trader, long term investor and parent, I implore you to please reinstate the Uptick Rule and confirm what 70+ market years and a 1963 SEC special study has both validated.