• Mar
  • 05
  • 2009
  • 2:45 PM

NYSE Chief Renews Call for Uptick Rule

By: Ray Pellecchia
File Under: NYSE, NYSE Amex, NYSE Arca, NYSE Euronext

I mentioned yesterday that our CEO, Duncan Niederauer, was speaking at the Museum of American Finance earlier this week, and Bloomberg picked up on his opposition to a stock-transaction tax. Today, Traders magazine is out with another news nugget from the same remarks, with Duncan again calling for the "uptick rule" to be reinstated.

Perhaps I should have gone to that speech instead of rushing home to catch "THE REAL HOUSEWIVES CONFESS: A WATCH WHAT HAPPENS SPECIAL."

But I digress. Here's an excerpt from the Traders coverage:

Duncan Niederauer, CEO of NYSE Euronext, would like to see the Securities and Exchange Commission reinstate the uptick rule for short sales, even if it's mainly for the sake of bucking up "investor psychology."

Referring to the trading community, he said, "we've got to come out with a definitive statement" for investors. He noted that last fall exchanges were not able to agree on an approach to limiting rapid declines in stock prices, such as an uptick rule or a circuit breaker for individual stocks. But he also laid responsibility at the SEC's feet, calling on the Commission to decide how it wants to approach this issue. "No more rhetoric, no more maybes--just what are they going to do," he said. Niederauer spoke Tuesday evening at the Museum of American Finance on Wall Street. ...

... Many others, however, have argued that in the current fast-moving market in which prices skip around rapidly, these tests simply rein in liquidity and potentially distort the market. The SEC's Office of Economic Analysis and a handful of academic studies, which analyzed data from a pilot that ran from 2005 until 2007, found that the lack of price tests did not adversely impact market quality.

Niederauer acknowledges this. The SEC and other studies, he said, presented a "good case why we didn't need it anymore." But while "there's no economic benefit we got from having an uptick rule," he continued, "I'm not sure there was any economic disbenefit. If the question is, 'Would people think it's a fairer game if we had an uptick rule?' the answer is 'Yes.'"

Steve Wunsch, a market structure expert and former executive at ISE Stock Exchange, agrees that the uptick is worth another look. "An uptick rule may help stabilize the market and throw a little bit of extra process at those CDS [credit default swap] buyers and rumormongers trying to drive a firm's stock price to zero," he said. In Wunsch's view, short sellers appear to have had the upper hand in recent months. "Restoring the uptick might redress the imbalance," he said. "Even if the main benefit were only public relations, that's still not a reason to dismiss it." ...

Your thoughts, as always, are welcome. Particularly as I'm sitting here watching the S&P 500 sink farther below 700.

Comments

Ray, I am def not trying to repeat myself from the last post, but this "up tick rule" could be a great opportunity for some positive change. There has never been a uptick rule in this new market model. Maybe a case can be made that there is a need for the uptick rule, but only in a market that can't be manipulated by algo's and where bids and offers mean something. Like they used to. Bringing back the uptick rule in this market in my opinion really would accomplish nothing. All the nyse needs is a little back bone and some public and media approval to push certain things through and I think there can be some real good done. Maybe the "up tick" discussion can open that door.

Thanks again,

Josh

by josh on March 5, 2009 6:13 PM

yes, but bringing back the uptick rule might prevent or reduce some of your thinner issues from dropping huge amounts for no other reason than a few mkt or limit orders well below the inside mkt.

j

by jt on March 6, 2009 9:19 AM

Last I checked, all volume was moving out of stocks and into the ETFs anyway... I think the uptick rule is a non-issue. The NYSE has bigger fish to fry if they want to "fix" their market.

Ray, you still upset over my Neil Young comments? Anyway, hope all is well there and glad to see Duncan strongly against the "trader tax." However, in this political environment, having his support might hurt our case.

-DT

by Dinosaur Trader on March 6, 2009 12:39 PM

Striking the uptick rule IMO made the markets trade structurally better for everyone as long as naked shorting is policed properly. Sure we get more volatility, but that is just a function of a market that trades more true to value in quicker fashion.

Too many people (longs) complain about the uptick rule being gone and being unfair to them. The fact is if the lack of an uptick rule has allowed shorts to rule the market then why isn't everyone shorting everything in sight since its so easy to make money trading that way? People forget that shorts have to cover at some point and if a security goes down too quickly it then presents value at some point to buyers more quickly than having an uptick rule in place... not to mention a more powerful move higher in price since the shorts will rush to cover.

If a stock has poor fundamentals then it should go down. The shorts just get it to its true value sooner and sometimes lower presenting great value to buyers.

Longs need to stop complaining about the lack of an uptick rule, it just so happens its the best thing that happened to them without realizing it.

by JR on March 6, 2009 4:37 PM

DT -- Hey, I wasn't upset to begin with, just had a different point of view. Good to hear from you. Interesting point about the political environment, but hey, we all need to speak out.

All swell here, apart from the market, which is about everything here, so I guess I should revise that.

JR -- Thanks for the thoughtful comment. I don't think anyone disputes the idea that stocks with poor fundamentals should go down. I think the issue is the perception that short selling makes stock prices more volatile on an intraday basis. As you point out, that can create opportunities, but not everyone sees it that way.

by Ray Pellecchia on March 9, 2009 9:21 AM

Shorting is a legitimate hedging technique. There are several ways to get around the uptick rule anyway if one wants to take the trouble - there always have been. The uptick rule just discourages the little guy from the game. Why not level the playing field and have a downtick rule for longs? Shouldn't we have an interest in keeping stocks from going up on buying or rumor?

by SH on March 26, 2009 12:09 PM

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