April 24, 2009
Comments on SHO proposal for an Uptick Rule
It is true that bringing back the Old Uptick Rule the way it was technically formed in the 1930s would be insufficient to achieve a positive meaningful result. However the basic principle is important in considering the fundamental reason to having a rule. That said, it would be far better to create a New Uptick Rule which would take into consideration todays advances in technology. With computer executions accounting for the majority of trades today and data gathering capability with the right software, the SEC would have the necessary teeth in enforcing a New Uptick Rule. The SEC could generate a red flag report at its discretion on who is breaking the rule. This would allow the SEC to take action find and fine those in violation which could deter manipulators, not to mention generating revenue needed to cover the funding issue mentioned in the meeting.
In addition, if the Uptick Rule software was designed with teeth, it would help the SEC in filtering out abusers of the system and could even have controls built in that would prevent a trader from placing an order unless the order met the criteria built into the rules parameters. If done right the New Uptick Rule would do its part to restore confidence in the markets from individual investors such as myself. More importantly, it would help move the markets out of the casino repute it is currently branded with today. The markets play an important role in our economy and should be held in highest regard instead of being treated like a casino with the various strategies used today under the disguise of hedging ones bet. There is no place in our financial markets for this type of thinking the damage is too great to our society.
The consideration of suitable Uptick Rule, software should play a huge role in not only policing transactions by generating reports on violators, but should also incorporate a pricing tier type system. An example of a pricing tier type system would be, an uptick of two cents on the share price between $1 to $4.99, an uptick of three cents on the share price between $5 to $9.99, an uptick of four cents between $10 to $49.99, an uptick of five cents between $50 to $99.99 and so forth. I would further add that in order to short under the New Uptick Rule the price of any stock on all exchanges including the bulletin board and pink sheets must have a minimum price of $1 or above to qualify for shorting purposes. Any consideration of an Uptick Rule should take into consideration the price of a stock so it will be meaningful and should include "All" the equity exchanges.
The opinion that placing an Uptick Rule would be in essence a ban on short selling is far from the truth. This opinion is more of an agenda, since the Uptick Rule was in place for over 70 years before its removal in 2007 and traders were able to short during that time, however more so after its removal.
It is important to have true valuation of a company and transparency. However, I would debate that short strategies play a real role in true valuation. Controlling a stock price on the down side by piling on the short end may cause an undervalue and possible downgrades by rating agencies using the share price multiplied by the outstanding share count to determine market cap, this could impair companys ability to raise capital when needed. In my opinion these strategies without the Uptick Rule, can harm the economy and cause a company to cut jobs as credit and thus the ability to raise credit become unavailable. By not having an Uptick Rule the shorts can put a company in a situation that could be harmful, not only to them but to the economy.
Exchanges profit on the number of transaction. The statement made that trades are made in seconds or minutes by some of the same traders further supports their agenda of increasing transaction frequency that a non-uptick rule may cause.
Do we really want our stock market to be considered a casino rather than a Capital Market, which would promote industry raising capital for the benefit of the economy and our society? Not to mention the World looking at our markets as a leader of a strong financial system in which to invest with the sence of safety.
The SEC should look at the lobby groups to ensure that profit does not come at the expense of the total economy by their individual agendas, when making a final decision in regards to the Uptick Rule. What is good for the total economy and Capital Markets is more important for the strength and transparency of our system in our society. Having products that are designed only to have bets one way or the other and giving these products the ability to control pricing should be a high concern. Having an Uptick Rule would benefit markets and improve investor confidence.
During the SHO meeting it was also mentioned that consideration should be made on the other side as to the "longs" moving a share price up. I do not think this is necessary, since it is almost impossible to move a share price up as it is in moving one down. However, if consideration were given I can only add that an exemption for MA activity would be advisable.
In closing, I am an individual investor and the only agenda I have is for orderly, honest markets into which I can invest in, so our economy can grow and add jobs. Market rules with the ability to weed out the abuses and those individuals that would undermine or game the system would benefit all and bring confidence. Thank you for considering an Uptick Rule. My hope is it will be implemented in a meaningful way and have the tools the SEC needs to monitor trades and take the necessary action when there are abuses.
Robert Geis
Fredonia, WI