May 4, 2009
I believe we may be placing to much of the blame on removing the up tick rule even though it was part of the issue. One of the other issues was lack of liquidity. When stock quote prices were changed from fractions to pennies, much of the liquidity at a specific price was compromised. As a former clerk in the pits at the CME, liquidity was a most important issue. In an example, if stock XYZ is bid 47 1/8 on 5000 shares and offered 5000 shares at 47 3/8, volatility was held in check by the size at each price. When penny spreads were introduced, much of that liquidity was spread out making it easier to hammer down the price because there were not as many shares avalable at narrow spreads. Rather than complicate the issue, making simple changes should solve the problem. Bring the uptick back and change the spreads to five cents. This should bring back more avaliable shares to each price and make it more difficult to hammer a stock down.