The Death of the Uptick Rule and It's Impact on Markets

The Uptick rule was a 73 year old SEC rule that made it more difficult to short stock. The SEC eliminated the Uptick Rule on July 6 and the Wall Street Journal reported today that it may be on contributor to the market's recent volatility.

The Wall Street Journal published an article today about how the elimination of the Uptick Rule may be a factor in recent market volatility.  The Rule made it difficult to go short a stock.  Now that the 75 year old rule has been eliminated it is much easier for institutions and individuals to take a short position.  The SEC eliminated the Uptick Rule on July 6th.

The chart below looks pretty inconclusive to me but the traders seem to be saying that it's had an impact.

 

 

If you aren't a Journal subscriber and want a good free description of the Uptick rule, check out this article: The Uptick Rule is Dead!
Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • Seth R

    August 14, 2007

    The uptick rule is an arcane rule that was basically meaningless in our very liquid market. It was only relevant in my trading in related to heavily shorted and illiquid biotech stocks on days when they were falling sharply. Nothing changed on July 6. The market became heavily shorted earlier in the year. Many quant managers start trying to explain why all their models failed again and why they lost tons of money last week. The removal of the uptick rule has not been a factor.

  • DaveSyver

    August 17, 2007

    Elimination of the uptick rule is just another technique that lets the few stick it to the many. Those very few have the inside information and fast trades that let them see that trend and make a quick million or so before normal people that trade long wake up. Other rules should also be corrected to level the trading arena. Dave

  • Broken

    January 28, 2008


    This is the elephant in the room but this elephant is invisible. Bush appointees effectively have facilitated a way for hedge funds and major financial houses to pay down the myriad debts on their books that they're currently writing down. Novice retail investors can't compete. Who could have known a company with sales of an Apple could tank the way it did without help from the shorts. Shorting has reached unprecedented levels and chances are we wouldn't even need the stimulus if the markets were'nt tanking in concert. If you don't think so then you're part of the problem and benefitting from it.

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