Congressman Gary Ackerman, who represents the Great Gatsby area of Long Island, has introduced a bill to bring back the “uptick rule.” The rule attempts to curb short shelling on stocks when prices are falling by requiring the stock to rise before new short position can be established.
The Great Depression era rule was finally repealed in 2007 after years of criticism from traders and economists. But, as short sellers have been ridiculously blamed for recent market volatility, critics of the SEC have been calling for its return.
Ackerman’s statement in favour of the rule is a tightly wound bundle of lies and nonsense.
“In the wake of the elimination of the uptick rule, the value of many volatile stocks have plummeted due to an onslaught manipulative short sale practices,” Ackerman said in a press release. “Reinstatement of the uptick rule is essential to rein in these abuses and restore much-needed stability and confidence to our financial markets.”
Right. That’s what happened. Manipulative shorts pushed down stocks. Broken balance sheets, poor management and a tanking economy had nothing to do with it.
And we’re sure investors would be very confident in market pricing if only the government got more involved.
The SEC’s poor performance in other areas disn’t exactly helping SEC head Chris Cox’s reputation. It’s ridiculous but if this uptick rule thing makes a comeback, we may have Bernie Madoff to thank.
Frankly, we’re almost ready to just say: fine, have your uptick rule. It very likely will have almost no effect except on very thinly traded stocks. It certainly won’t help Citi, Morgan Stanley or JP Morgan, or any other widely held and traded stocks. But its uselessness may make it a perfect piece of legislation: a symbolic move that won’t screw around with market processes very much.