May 30, 2009
I would like to express my view of what the Uptick Rule represents and why I think we absolutely need to have the rule restored. In order to have a fair balanced market we definitly need to have short selling to help counter balance the ability of large money to be able to drive up the price of stocks with endless buying. Eventually however when buyers are exhausted prices cant continue to spike. In order for short selling to balance the upward pressure on stocks they have to be able to have proportional abilities that will not outstrip the natural forces of the market and that can not scale to the point of being a self fulfilling prophecy that moves the market. The combination of naked short selling with no uptick rule allows and encourages the funds with the most money to pile as many resources as possible into their short positions. By piling into large short positions and then intentionally exhausting buyers by selling lower and lower and lower until only an idiot would keep buying a company that's price kept crashing, or by exhausting all the capital buyers are willing to commit at any one point that's how they suceed, by destroying the will of buyers. When they can drive the price as low as possible then they suceed the most, and they do not want buyers involved until they want to collect their paychecks at the climax of their destruction. Why should the SEC allow a market force in place that profits the most where there is the largest abscence of buyers to balance out their sellers? How does this not create additional volatility? When combined with naked short selling, it allows incredible destruction to be possible, since the goal of most of the volume they generate with the short sell attempts is to not capture a natural dip in pricing, but to actually create the drop in price directly. Who cares at that point if they cant deliver a large proportion of the shares they attempted to trade during the day? the downward pressure was the goal, which then allowed the balance of the transations to be consumated for a profit, and without that extra phantom volume may not have been there at all in the first place. There should never be a reason why you cant deliver on a trade. If you have properly borrowed your share in the first place then you should be able to deliver it on time. If you cant cover your short position you should be fined 10X the high price of your shares you're trying to trade. If the market is working normally there should never be a reason for that to fail. The banking system tracks billions of dollars of transactions all across the nation on a daily basis and hardly a dollar ever goes missing. There's no reason why you cant track stocks equally as well as the banking system follows the dollars and cents of all that the world buys and sells. Ya know what would happen if I sold someone a car and it turns out I never had a car to sell in the first place? It'd be called fraud and I would be arrested. Why is it any different when trying to sell stocks short that you havent secured for the trade first?
At least with upward pressure on a stock price from large volumes of buyers when you have buyer exhaustion true supply and demand can begin to rebalance again and the price will pull back until more people can buy again and we can try to find the true price. If the true price is lower than when the short seller initiated his position he still makes money and the world goes on. With destructive short selling when buyers become exhausted it destroys the value of the stock and then it greeen lights further short selling which leads to more price destruction and destroys confidence needed to bring in more buyers and will encourage more sellers to abandon their positions imparing the abliity of the market to find true balance again.
By allowing a Plus Tick rule be reinstated it will ensure that the market is in balance and it will stop downward vortexes of value from being manufactured, because the short sellers will need to rely on there being more buyers than sellers for them to complete their trades and make their money. If they have to wait for people to pay up for the stock to move the needle back up again, it will discourge them from destroying stocks wholesale, since if they destroy it too much they wont get that plus tick they need to seal the deal. With .2% of outstanding shares trading during the day setting the price of the entire company, there are many more people who can be scared into selling to try to protect themselves, and it only takes a moderate excess of volume in one direction or another to move the price of a stock.
Please Please do not allow policy to remain in place as is to encourage large parties to induce buyer fatigue and fear and profit off the destruction of the vast majority of the shareholders. Please reinstate a strong Plus tick rule to be in use at all times on stocks, and please prevent the use of naked short selling. Please ensure that anyone attempting to sell a stock short has previously borrowed that stock to help allow natural buying and selling to command the price of the stock. Even temporary canyons of price can cause immense amounts of destruction and need to be mitigated to have a healthy market.
Please fix this imbalance in the market.