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

ETF sponsors, of course, are only responding to demand. (I wonder if the old study still holds true, that most active managers underperform the indices.)

Rules and Choices

There is no need to compare the arguments for grabbing income right now vs. acting in a way that pays income, and probably a lot more income, periodically over time. There are good, rational reasons to argue for each. Rather, we have to consider whether we want so many golden eggs right now that we are willing to run the risk that we'll kill the goose when we jam her full of amphetamines. There is a limit to the immediate capacity of almost everything.

This is why even the freest of markets need regulations. We need to be free to make choices in the world of finance, and that means we need functioning and at least occasionally discriminate markets. No markets, no way to choose. Markets require capital, and capital requires a level playing field. The last 12 months have shown us what happens when capital decides it's not worth it to be in the markets. Money market levels are at all-time highs, as capital is pulled to the sidelines.

The Securities and Exchange Commission eliminated the plus-tick rule because people and organizations with an interest in seeing it gone asked them to, and while there were others who disagreed, the SEC chose to get rid of it. Before doing so, the agency's Office of Economic Analysis studied the issue over a period of about 18 months, beginning in May 2005. (Interestingly, although the pilot period was extended until August 2007, the SEC did not wait until the pilot was complete before eliminating the rule.)