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Opinion: Uptick Rule Is No Cure All

The uptick rule, the credit default swap (CDS) market and short/leveraged ETFs have become lightning rod issues for market participants who see how poor regulation of, or a complete failure to regulate, the financial markets resulted in an untenable investment environment.

By now, legislators on Capitol Hill have latched onto these lightning rods in an attempt to seek a Congressional cure, so the writing is on the wall. In fact, Barclays (BCS), the biggest purveyor of ETFs, announced that the company is in talks to sell its iShares ETF unit. The company cited the need to raise capital, but perhaps Barclays really considered the possible regulation of ETFs as a signal of a topping out in the ETF market.

Simply reinstating the uptick rule, regulating CDS and eliminating short and leveraged ETFs will not be cure-alls to all that ails the markets. For generations, creative Wall Street traders have figured out ways to legally weave their way around regulations to obtain a stated goal -- namely, to make money. Count me as one of those creative individuals. As sure as the sun rises in the east and sets in the west, if we continue on the current legislative track, my guess is that the uptick rule will be reinstated with exceptive relief, CDS will be loosely regulated and ETFs will be subjected to more scrutiny but remain as neither fish nor fowl from a regulatory perspective. Whether that is the manner in which regulatory changes unfold is not certain. I will guarantee, however, that new regulations will be lacking in scope and impact. In other words, we will have more opportunities to create structures to get around a new set of half-baked rules. I might as well dust off my résumé and shop it around now.

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