This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

UltraShorts and the Fall of the Uptick Rule

Stocks in this article: UYG SKF FXP

The SEC study concluded that "most evidence shows that the pilot had a minor effect. The most intriguing results are in volatility. Some evidence that the tick test has a bigger effect in small stocks." (Question/observation: If the tick test has a bigger volatility effect on smaller stocks, and that is presumably because the smaller stocks cannot handle larger volume brought about by the relaxation in trading constraints, what does that then say about the volumes created by the short-sided sector ETFs and the resultant effects on the underlying stocks? This never would have been picked up in the study, because the study was concluded before these short-sided sector ETFs were rolled out.)

The authors of the study made a couple of other interesting empirical observations. First, they noted that depth of quotes decreased in the pilot stocks. They conjecture that this is because a short-seller without an uptick rule is a liquidity demander, and the uptick rule may force them into being a liquidity supplier. This is fascinating, because many short-sellers argue about the liquidity they bring to the market, yet the evidence was that short-sellers were perhaps liquidity takers without the uptick rule.

The other intriguing statement the SEC staffers made was the caveat that perhaps during the pilot program, short-sellers with manipulative intentions were on good behavior, knowing that their actions were under scrutiny (and if they fouled it up, they may lose their chance to do away with the uptick rule).

From December 2006 to April 2007, the SEC received 27 comment letters on the proposed removal of the uptick rule. Fifteen of these letters (mostly from individual investors, but one came from a consultant on behalf of the International Association of Small Broker-Dealers and Advisors -- which urged caution) either spoke out against the proposal, against the elimination of the uptick rule or against the practice of naked short-selling.

3 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.66 +9.43 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs