May 4, 2009
Last year, I sent a question to the SEC asking them:
1. Why did the SEC do away with the uptick rule which has worked so well for the last 70 years?
2. Why does the SEC allow short sellers to virtually sell short unlimited amounts of a company's stock without having identified where the physical stock is that they are shorting? It was my understanding that selling stock without identifying where the stock exists, is illegal.
I received an email response from someone from the SEC in response to my first question. The response said that the uptick rule had no effect on short selling in today environment. Based on the disaster in the economy over the last year, I find it hard to believe that the uptick rule would not have dampened the speed of the tremendous downturn in the markets.
I did not receive any response to my second question. I may be wrong, but it was my understanding that selling something you do not own (or in the case of stocks, selling more stocks than you could possibly borrow), is called fraud. Is the SEC at least going to investigate and stop the selling of stock without having first identified where the stock exists?
My answers to my questions are:
1. Definitely reinstate the uptick rule with at least a $.05 uptick.
2. Definitely stop the practice of short selling without having first identified where the stock exists that you are selling short. The SEC should start investigating brokers that allow this practice.