This Day On The Street
Continue to site
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

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

Join Jim Cramer, Doug Kass, Helene Meisler and other RealMoney pros at Investment Conference on "Best Ideas to Make Real Money." Save the date: Saturday, May 2! More details here.

This is the final part of a three-part series on why the "plus-tick" rule should be reinstated. This rule, also known as the uptick rule, requires that any person selling a stock short must do so only at the price which is the higher of the last two discrete transactions. Part I looked at how the rule serves a vital function in the market by addressing imbalances.

In Part II, we discussed certain obscure but significant risks built into certain market practices such as basket trading and the use of leverage, and we examined some of the unintended consequences of having eliminated the rule to the detriment of the original purpose of capital markets.

Today, in Part III, we will describe how the rule has been strengthened and weakened at different times over the past two decades, show how the market acted during those times, and describe the process whereby the rule was eliminated in July of 2007.

The existence of the plus-tick rule presents a classic conundrum: the tradeoff between short-term hoarding and long-term benefits.

The rule impedes a certain type of transactions, but not others. In a competitive, commission-based world, not being able to access those prohibited transactions would be frustrating enough, but as we discussed in Part II, the development of index ETFs has added a way to access revenue that's not typically associated with transactions but rather with asset levels.

The ETF sponsors' only mandate is to match the price level prevailing when their investors' capital is committed. Even if their capital -- or levered capital promised on it -- is so great that they end up moving the market, they fulfill their promise by getting the money invested, regardless of price. How frustrating, then, to have a rule that impedes their ability to make transactions happen, and so to generate more fees.
1 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
UYG $75.04 -0.61%
FXP $39.56 -2.70%
SRS $46.21 1.30%
URE $103.11 -1.40%
QID $29.09 0.52%


Chart of I:DJI
DOW 17,719.92 -78.57 -0.44%
S&P 500 2,080.41 -9.70 -0.46%
NASDAQ 5,108.6660 -18.8590 -0.37%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs