June 11, 2009
It is true that the large decline in the US equity markets over the last year followed closely behind removal of the uptick rule. It is also true that the US and the world entered into the worst financial and economic crisis in 80 years. At this point, it looks like the market is again stable and investor confidence is restored without any corresponding regulatory action on the part of the SEC. Of the three questions raised in the SECs release paragraph, only one remains an open issue: whether short sale price restrictions or circuit breaker restrictions should be imposed.
This question was thoroughly vetted by the SEC prior to its decision to remove the uptick rule in 2007. The only thing that has changed since then is that the market has gone through a severe and turbulent price adjustment in light of a belated realization, or more accurately, a belated efficient pricing of the financial crisis. It does not seem to me that adding strict regulations that impede price discovery is the best way to encourage better and more responsive market pricing in the future.
I believe that the decision by the SEC to remove the uptick rule in 2007 was proper to promote efficient pricing in our equity markets and was well grounded in thoughtful deliberation. It would be inappropriate for that rational decision to be overturned in emotional response to the upheaval our markets have just been through.
I oppose reinstatement of any type of uptick rule. If such regulation is to be imposed, my preference is for regulation that least interferes with the role that short selling plays in promoting efficient pricing.