March 20, 2008
We are writing you regarding reinstatement of SEC Rule 10a-1, commonly known as the Uptick Rule.
A former rule established by the SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines. The SEC eliminated the rule on July 6, 2007.
In a significant market decline such as we have seen over the last two weeks, short-sellers, computer program trading and large institutions can short at will on any stock and we will get larger price declines in times of uncertainty, with potentially more severe consequences. Markets work because of confidence. An action -- in this case, removal of the uptick rule-- that undermines confidence is simply bad policy.
We are living in a time of unprecedented disruptions of capital markets globally due to the overhang of mortgage derivatives. Massive injections of liquidity and rate cuts have been implemented in an effort to stabilize markets; this has contributed to extreme volatility of markets. The elimination of the uptick rule exacerbates market volatility.
We urge you to reconsider the wisdom of eliminating the uptick rule and consider reinstating it in an effort to stabilize markets and eliminate the present advantage hedge funds and institutional traders presently enjoy. The small individual investor can not compete with the billions of dollars at the disposal of these large short sellers in driving prices downward. We are at a definite, and costly, disadvantage.
Jon R. & Sharon Wagner