August 26, 2009
Dear Chairman Schapiro,
In defense of reinstating the uptick rule:
In a recent article in the Securities Industry News online by John Hintze on August 24, 2009, titled "Rule Could Chill Short Selling – And Market," Michael Trocchio is quoted:
"High-frequency trading firms would be most affected, Trocchio says, because their rapid-fire strategies, where thousands of orders can be placed in a second, require aggressively hitting bids and offers in their efforts to sell or buy securities immediately."
"In addition, Trocchio says that by prohibiting short sellers from hitting bids, long sellers—STOCK OWNERS - WILL DICTATE THE PRICE THAT PURCHASERS PAY. That, he says, is a recipe for inflating stock prices because long investors want a stocks price to go up, to make money." (emphasis added)
The great public calamity that has befallen this country stems from the absurdness of the type of thinking Trocchio has put forth. The schemes devised by Wall Street to manipulate the exchange of stock ownership are ultimately superficial. If it wasn't a deceitful shell game it would not be so difficult to put a value on the toxic assets that are held by the Treasury. The problem is they are not assets – they are the hallow remnants of the short selling game played on derivatives by high frequency trading firms to the detriment of our national wealth and freedom.
Trocchio sentiment seems to be ingrained within the minds of the Insiders of Wall Street and it is a dangerous type of thinking, nothing more than gambling. The Wall Street "house" that devises the financial instrument is the one that wins the larger percentage – no different from Las Vegas.
There is arrogance on Wall Street from knowing they have an arsenal of advantage by their influence over and within our government and their power to paint the tape any way they want. They are spoiled by their ill-gotten gains.
While there is inherent risk in trading stocks it is not meant to be the same type of gambling game played just for the sport of it. The stocks represent real companies and real income and real lives of Americans trying to prosper. Exactly, whose money are the Wall Street wizards taking?
Of course, long investors want a stock price to go up to make money. Long investors want the fundamentals of a company to improve and increase the value of the stock. Everyone wins, the company, the employees, the owner of the stock, this country.
Short selling is necessary to temper runaway enthusiasm that may not be founded in a real change in the fundamentals of a company. But that is not the game that is being played. There exists a great disparity on the playing field. There are many small investors trying to hedge inflation and build a retirement fund that do not have the benefit of high frequency trading programs or a boiler room.
Trocchio will always be WRONG about stock owners dictating the price that purchasers pay. In a free market the purchasers always dictate price. If a stock owner wants $100 for his shares and no one buys them, then the stock owner did not dictate anything.
On the other hand, if a high frequency trading firm persists in hammering down a stock price under the guise of creating liquidity it is nothing more than pure manipulation. And until recently and probably in spite of the naked short rulings the high frequency trading firms further skewed the odds to favor the "house" by piling on naked short selling.
How absurd is it to create a market that does not exist? It throws out of whack our whole idea of markets and capitalism.
No argument can be made against reinstating the uptick rule to stave off other fraudulent schemes that lure investors into participating in the stock market. Unabated short selling and liquidity is not a legitimate argument against the inherent upside mentality of the average investor.
I am not in favor of the alternative uptick rule or the circuit breaker. A circuit breaker would circumvent capitalism – if a company is failing (of it's own accord) it should fail and not be bailed out. I favor market wide short sale restrictions based on either the last sale price or the national best bid.
And after you have instituted the uptick rule, please look into what is really necessary to make a market and why the Market Makers, such as Knight Capital, need a bankruptcy department.
Source for quotes: http://www.securitiesindustry.com/news/-23856-1.html?ET=securitiesindustry:e1679:180816a:st=email