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Opinion: We Need the Plus-Tick Rule, Part II

So you may need only goose the premium on one tranche or series of security to infect all the rest. If there are five different securities outstanding, how much leverage have you brought to bear? What if the tranche on which the CDS you bought was only $100 million in size, and the others were all in excess of $400 million?

Investors might look at the common while you were sloppily banging bids on it, adding to your previously positioned (maybe larger) existing short. You could even do the whole thing on a bunch of names, then use levered ETFs to slam the bids (buying other names to hedge that part of the position, or not - heck, the whole thing might be going the way you want anyway). Sound manipulative?

You might successfully argue that it's not: If the company can't do a better job of protecting its competitive advantage in financing its business via the capital markets, it deserves a lower valuation, you could argue, if you could keep a straight face. Unfortunately, there might be no good alternative to the capital markets for the company ... unless you count the U.S. taxpayer. However, the government elected by those taxpayers, believing whole-heartedly in the rationality of free markets, might even help you along, ratifying your position by forcing a "take-under" of the company you've shorted.

Eric Oberg and Doug Kass have argued eloquently against levered ETFs and certain practices employed by quantitative traders. The plus-tick rule should be reinstated on its own merits, but it would be no surprise if doing so were to choke off the negative effects of those as well.


Know What You Own:Other ProShares funds include the ProShares Ultra Real Estate ETF (URE), the ProShares UltraShort Real Estate ETF (SRS), the ProShares Ultra Financial ETF (UYG), the ProShares UltraShort FTSE/Xinhua China 25 (FXP), the ProShares UltraShort QQQ (QID), the ProShares UltraShort Oil & Gas (DUG) and the ProShares UltraShort Industrials (SIJ).

At the time of publication, Furber had no positions in stocks mentioned.

William Furber is the founder of High Street Advisors in Manchester, Mass.

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