February 20, 2010
It is in the public interest that we protect the ability of companies to raise capital efficiently for good economically viable purposes. Preserving efficient and reliable access to this factor of production is the main benefit of the securities markets to our society and it is the primary duty of the SEC to protect confidence in these markets. If investors need to demand extra risk premiums for their investment due to unnecessary volatility caused by secondary market "gamers" it has the same effect that a tax on capital would, and thus reduces the number of projects that will pass companies ROI hurdles. Fewer projects embarked on, mean fewer employment opportunities and less economic activity for the public to benefit from.
The SEC has a public duty and a moral obligation to be biased toward making capital formation in the primary markets as efficient as possible and thus should go out of its way to give long investors, that are willing to risk putting up capital for the public good, the assurance that they do not need to demand unnecessary risk premiums to offset the perceived risk of unrestrained short-induced volatility. The SEC has the duty to increase market confidence by reducing, not just market volatility, but also the perception of volatility which leads to higher risk premiums. The transparency of the original uptick rule gave this assurance to capital providers in the past and is what is needed to reassure them going forward.
Capital providers perceive that sophisticated market players, using computer algorithms, sometimes cause price movements in some assets to precipitate gains in other assets. Some of these mechanisms seem to have been at play in the market meltdowns of 2009. The public also perceives that the SEC does not have the resources or motivations to enforce, even existing rules, such as the rules against naked shorting. Therefore, the capital providing public can only regain confidence again when the transparency of the original uptick rule brings back daylight to the capital markets. Please restore the original uptick rule. If erring on the side of being transparent only reduced the risk of the disintegration of the global capital markets by 5%, would that not be enough of a reason to bring back the original up-tick rule?