Modified Uptick Rule

[Red_Ink_inc]

SEC mulls updated uptick rule, according to sources -

ReutersReuters reports that U.S. securities regulators are working on an updated version of the so-called uptick rule to regulate a type of trading blamed for dramatic declines in stocks, three sources familiar with the matter told Reuters on Monday. The updated version of the Depression-era rule is expected to account for changes in the market, including the advent of decimalization, which allows stocks to be traded in much smaller increments, the sources said. Members of the U.S. Securities and Exchange Commission are scheduled to meet April 8 to consider short sale price test proposals... The three sources told Reuters that SEC staff were working on updating the uptick rule. Two of the sources said the SEC was considering at least two different types of price test options, along with a range of questions that could lead to yet another type of price test proposal. The three sources spoke on condition of anonymity because they were not authorized to speak on the SEC's behalf and because the proposals are still being crafted. An SEC spokesman had no comment.

 

[RiceRocket]

The uptick rule doesn't create volatility, it squashes it. I remember trading GE with the uptick rule, it traded so slow and boring, and it took a while to get a short on, because you had to sit on the offer in a long line. But now that the rule is gone, it trades like a high beta stock.

 

[Anaconda]

Quote from RiceRocket:

The uptick rule doesn't create volatility, it squashes it. I remember trading GE with the uptick rule, it traded so slow and boring, and it took a while to get a short on, because you had to sit on the offer in a long line. But now that the rule is gone, it trades like a high beta stock.

Uhm, GE back then was a very slow low range stock. You can't compare it with now, when it's exposed that the company is mostly trash paper from its finance unit. There is actually a reason for it to move now.

Uptick rule created volatility by the actual short and the bounce. Apparently you missed out on both of the opportunities. The fact that you mention GE, confirms it. High volume blue chips are not affected by the uptick rule whatsoever.

 

[Anaconda]

Quote from Anaconda:

High volume blue chips are not affected by the uptick rule whatsoever.

Or actually, 95% of the time. On a rare occasion, the built up shorts actually mattered.

 

[gkishot]

Will the uptick rule affect the SPY etf?

 

[optionsgirl]

Quote from gkishot:

Will the uptick rule affect the SPY etf?

I gather this would affect the entire market if properly enforced. So yes. I think if you combine this with naked short selling prohibition, volatility would lessen dramatically. For options traders, it makes more for a boring market. Personally, I am ambivalent about this since I trade options. Though, I do admit some bias against these new rules. I presume once the good times roll again and a new administration is at the helm, we will probably get complacent about such "unecessary" regulation...

 

[RiceRocket]

Quote from Anaconda:

Uhm, GE back then was a very slow low range stock. You can't compare it with now, when it's exposed that the company is mostly trash paper from its finance unit. There is actually a reason for it to move now.

Uptick rule created volatility by the actual short and the bounce. Apparently you missed out on both of the opportunities. The fact that you mention GE, confirms it. High volume blue chips are not affected by the uptick rule whatsoever.

I understand what you're saying. My point is, that the repeal of the uptick rule made things a lot worse. As the stock falls, the company loses market cap, then the shorts pile on again, then they get downgraded....etc. In GE's case it made the situation worse. No one knows what kind of shit paper they have, or if they are fine. But the cascading sell off happened too quickly to allow time for the information to flow into the price discovery.

 

[CET]

The uptick rule will not stop bad stocks from falling hard or stop short attacks. It will only slow down the fall. The 10% drop clause is actually a good move by the exchanges, since it will make the give plenty of free range before it kicks in.

 

[Dustin]

Quote from Anaconda:

Anybody who is a real trader would want the uptick rule back. It creates opportunity.

I absolutely, full-heartedly disagree. The uptick rule dampens vol.

 

[sprstpd]

Quote from CET:

The uptick rule will not stop bad stocks from falling hard or stop short attacks. It will only slow down the fall. The 10% drop clause is actually a good move by the exchanges, since it will make the give plenty of free range before it kicks in.

Since I am pessimistic about anything the SEC implements, I am going to assume the worst case here and that this modified uptick rule will be put in place all the time, not just when there is a 10% drop. And that will suck.