Thursday, March 20, 2008
the "up tick" rule
There is much rumbling about the abolition of the up tic rule by the SEC .This rule put in place in the 1930’s protected investors against savage shorting. Many credit the recent extremes in volatility to the run away no holds bar shorting of stocks. Turning even the slightest rumor into a self full filling prophesy. Although I do think the “up tick” rule as it was called was valuable in the functioning of orderly markets I am still on the fence as to weather its abolition has greatly increased volatility. Yes since the rule change volatility has grown but we had just passed through a period of almost no volatility that many investors have mistaken for normal, this is simply not the case. This period of no or little volatility was more a symptom of an uninspired stock market. In my view the current banking and liquidity crisis that coincided with the rule change has greatly exacerbated market volatility with or with out the up tick rule change. The weakness in the market can also be credited too raising inflation, lack of leadership, populist politicians, anti business and anti individual freedom attitude, lack of confidence and in my view the coming reemergence of the jimmy carter years take 2.I guess my point is that with a credit crisis of this magnitude ,I am not sure I’d look to the reinstitution of up tick rule to turn the market around or repair bad managements or stupid politics.