uptick rule

The uptick rule is a securities trading rule used to regulate short selling in financial markets. The rule limits the timing of short sales. It mandates, subject to certain exceptions, that, when sold, a listed security must either be sold short at a price above the price at which the immediately preceding sale was effected or at the last sale price if it is higher than the last different price. In 1938, the U.S. Securities and Exchange Commission (SEC) adopted the uptick rule, more formally known as rule 10a-1, after conducting an inquiry into the effects of concentrated short selling during the market break of 1937, and after considering the effects of short selling in downward moving markets. [1] The original rule was implemented by Joseph P. Kennedy, Sr., the first SEC commissioner.[2]

The NASD and Nasdaq adopted their own short sale price tests based on the last bid rather than on the last reported sale.[3] Contents [hide] 1 United States 1.1 Elimination 1.2 Calls for reinstatement 2 Hong Kong 3 Effectiveness of the rule 4 References //

United States

Elimination

The SEC eliminated the uptick rule on July 6, 2007.[4] The elimination of the rule was preceded by an SEC order, placed on July 28, 2004, to create a one-year pilot temporarily suspending the uptick rule on select securities. The purpose of the suspension was so that the commission could study the effectiveness of the rule. The SEC's Office of Economic Analysis and academic researchers provided the SEC with analysis of the data obtained during a six-month period starting May 2, 2005. The consensus was against the uptick rule, with the commission concluding that the uptick rule "modestly reduce[d] liquidity and do[es] not appear necessary to prevent manipulation,"[3] although the pilot test for one year did not test for a rogue wave thought to have partly caused the 1929 crash, and for which there was no known theory in money markets.

The rule was originally put in place to avoid the perpetration of a financial crime known as a bear raid. However, short sellers themselves viewed the rule as "largely symbolic" and having little actual effect on short selling.[5]

Calls for reinstatement

On August 27, 2007, the New York Times published an article on Muriel Siebert, former state banking superintendent of New York, "Wall Street veteran and financial sage", and, in 1967, the first woman to become a member of the New York Stock Exchange. In this article she expressed severe concerns about market volatility: “We’ve never seen volatility like this. We’re watching history being made.” Siebert pointed to the uptick rule, saying, “The S.E.C. took away the short-sale rule and when the markets were falling, institutional investors just pounded stocks because they didn’t need an uptick."[6]

On July 3, 2008 Wachtell, Lipton, Rosen & Katz, an adviser on mergers and acquisitions, said short-selling was at record levels and asked the SEC to take urgent action and reinstate