June 12, 2009
Mrs. Elizabeth Murphy
Secretary, Securities and Exchange Commission
100 F Street, NE
Washington DC, 20549-1090
Ref. File No: S7-08-09
Dear Mrs. Murphy,
I am writing to express my opposition to the reinstatement of the “Uptick Rule”. In 2004 the SEC conducted a long and extensive study to determine the effectiveness of the uptick rule which included a test pilot program to see the real market effects of removing the uptick rule. In July 2007, the general consensus was to eliminate the uptick rule because of no material consequence to stock prices were found.
I believe that the research conducted over the course of those three years analyzed all different scenarios and concluded that the uptick rule would simply slow down what would be the decline in a particular stock. For example, during the period when Bear Sterns collapsed the resulting sell off in the stock from $80 to $2 would have occurred with or with out the uptick rule. The old uptick rule would have just postponed the inevitable and create an inefficient market place free from true transparency.
In addition, a reinstitution of the original uptick rule would all but eliminate effective shorting of stocks. Large and small traders implement short strategies to mitigate risk on other equity positions. Imposing the old up-tick rule would make it much more difficult, and expensive, for market participants to manage this risk. Equity traders and investors that chose to short a stock also contribute to the level of liquidity in each stock which is a must in an efficient free market system. The more liquid a stock is because of short sellers in the market place the more likely every investor can receive the price and transaction they wish. By instituting the old uptick rule, you would be heavily decreasing stock liquidity and there would not enough shares to absorb some transactions at different market price.
I am confident that reinstituting the old uptick rule does little to prevent the inevitable, and diminishes the market efficiency as described above. I am willing to concede that during these tough economic times and volatile markets that some form of regulatory action can be taken. I am a proponent of the circuit breaker idea, which kicks in after a large sell off in a stock price. This circuit breaker would prohibit short selling after a large determined price or percentage decline. This compromised solution can protect small investors from extreme equity price collapses while keeping our free market system as efficient and transparent as possible.