April 21, 2009
Some academic research claim that there is no evidence that the uptick rule matters based on data collected during the 2005-2006 SEC trial. This is misleading The uptick rule is to prevent market from crash. It is not surprising that uptick rule may appear to be useless during a regular trading environment.
In addition, uptick rule is designed to prevent extreme event from happening. If one conduct research by averaging all data, all the extreme events will be averaged out - therefore, no statistical evidence can be presented.
However, it does not mean that abusive short-selling is not committing damage. The hedge funds with billions of dollars can easily launch an attack on a rather healthy entity by flooding the market with infinite supply of stocks. Majority of Wall Street Traders are very familiar with these kind of tricks. Yet ironically, only academics and regulators need hard statistical evidence.
Without a good uptick rule protection, individual investors will always be the vulnerable group. Over time, it will kill the capital market.