May 19, 2010
The equity markets have had increased volatility since mid 2007 when the uptick rule was removed. Studies at Birinyi Associates point to the removal of the uptick rule as a catalyst for a decline in the DJIA non-block money flow, increases in the $VIX index, and an increase in the average daily change in SP 500 stocks.
In essence, without an uptick rule it is now easier for large market participants to employ bear raids to create swift and erratic declines in the equity markets. It seems the S.E.C. should not be as inclined to worship at the alter of market liquidity. Some liquidity brought to the market by those, knowingly or unknowingly, conducting bear raids needs to be deflected.
Owners of equity shares should always be allowed to sell shares unhindered. However, unlimited short selling in great numbers is destabilizing to the equity markets. Measures such as five minute circuit breakers may or may not stem the tide of a bear raid after if has commenced. What is needed is the constant and reliable braking power, if you will, of an uptick rule to help insure a more steady market before bear raids gain too much momentum.
Christopher Cox, previously of the S.E.C., is quoted as saying the removal of the uptick rule during his watch was a mistake. One can imagine investor confidence has eroded because this situation still has not been corrected. It is time for the current S.E.C. to reinstall an effective uptick rule, which can help to slow all bear raids before they unsettle a more normal range of trading activity.