First published March 16, 2008 under: Here’s why everything is hitting the fan at the same time.
Here's the original post.
After safely protecting investors for over six decades, a little known SEC rule was quietly removed on July 6, 2007.
With the removal of this rule all the rules of trading and investing in the market went out the window.
One of the reasons for the market's current volatility is a direct result of this rule change.
This major SEC rule was designed to protect investors.
With the removal of this rule, professional traders and hedge funds will be able to suck money out of the market and your portfolio in no time flat.
Why this rule that has stood the test of time since 1938 and was put in place to protect investors was removed is a big mystery.
Why now?
Here's what I suspect happened... some large hedge funds got together and lobbied to have this major trading rule removed.
It's just that simple. Why else would the SEC act out of the blue and remove this very important investor safe guard?
I suspect with this rule change the hedge funds have just been given the keys to Fort Knox.
I made this video last year but it details how this new ruling will effect you. The video explains in every day language what you can do to protect your capital from the hedge fund gunslingers and professional traders.
Watch the video as my guest. No registration required.
After you view the video you will have the knowledge on how to protect your portfolio, while at the same time reducing your risk exposure.
Adam Hewison
President INO.com
Anybody ready to start talking about this again?
Let's get real. So the shorts push GE (primarily a financial company now) down to one cent? Call me; I'll buy 100,000,000 shares. If they push a stock down to where it's a bargain, the longs will handle them.
If shorts are so damaging, how do you explain Fred's post above this?
Stop me from shorting? Fine; I'll just buy OTM puts on your stock.
Why can't those of you against short selling accept that maybe there really was a problem with the companies that got hurt? Anybody want to claim BSC was sound and clean as a whistle?
Insanity.
Just before BSC collapsed, its CEO Alan Schwartz publicly claimed the company was sound. Then it collapsed. I bought BSC a bit above $2; its NYC HQ was worth more than that. A $2 buyout had to be approved by the BSC shareholders and that would never happen. I made a nice profit. But, back to the point, why hasn't Scwartz been indicted for misleading investors?
The uptick rule is not that important.
If the banks suffer big losses then the price of the bank stock will go down whatever happened. Don't expect the stock market to go up when the economy is not well.
About volatility and the uptick rule: When times are incertain, volatilty rises whatever uptick or shorting rules.
In the Shanghai stock market, the volatility is higher than here and shorting is not allowed, options doesn't exist and there is no stock index futures.
I don't understand if the uptick rule is back or not but i don't think it change something in the market.
The problem of the stock market is the economy. The stock market just react or forecast the economy.
If most of the banks are wrecked it is not because of an uptick rule or shorting.
I have been following the Shanghai stock market in the last 2 years and volatility is very high.
In Shanghai, you can't short, there are no options and no stock index futures.
The uptick rule was removed in 2007 as I recall. I a bit confused that traders like Adam who profess no bias about long or short might blame the markets' falling this time on the lack of an uptick rule. What is so different about this bear market than so many others in the past that occurred even more viciously with the uptick rule in place? Uptick rule or not, this market was primed to fall hard and I do not believe that the uptick rule has played a part. Like bear markets before, this market is falling because of longs giving up and selling to de-leverage much more than short-selling.
By eliminating these rules , trading with the
trade triangle is not valid anymore'
Please correct me if my coclusion is wrong.
Interesting on Forbes
"SEC to tighten the locate requirements for short-sellers, says the fact that only a few big financial companies benefit from the special rules means there is a regulatory "apartheid system."
"It's the theater of the absurd," Byrne says.
"Critics say the SEC has been dragging its feet on tighter rules on short-selling. Last year it controversially removed the rule that short sales could only be made on an uptick in a stock. Also, the agency recently extended a comment period on rules that would eliminate option market makers' exemption from the locate requirement. Critics say the option market makers' exemption, together with the SEC's elimination of the uptick rule last year, has exacerbated the downward pressure on heavily shorted stocks."
I like the option market makers exemption part, what a rigged game! The same cockroaches shorting the stock into the toilet will be more than glad to write some puts to bag holders along the way just before they unwind their trades.
http://www.forbes.com/business/2008/07/15/sec-shorting-stocks-biz-cx_lm_0715nakedshort.html
Jay, you don't understand, removing the uptick rule has opened the highway with no speed limit for black-box trading. In essence a stocks direction in many cases will be forced by these dominant players regardless of fundamentals to profit from rumor, confusion, emotion, margin calls and options etc. with very little risk due to the sophisticated hedging along the way. The market is turning more and more into a slot machine, no kidding it really is, you haven't seen nothing yet.
It seems very few people really understand the uptick rule and it's effect on the market. The back room boys in all their power and glory.
The way I see it the rule, it prevents pounding a stock down to nothing by the hedge funds and large backroom organizations with the capital to covers millions in short positions in case a few shorts go against them. We the little people on the other hand don't have the capital or connections to short large positions in a down trending market. Yeah a few little people jump on the gravy train for a quick ride and a few easy bucks but the rule removal has created a fear factor in the markets that trap little people deep in long positions or simply drive them away from the market all together! I personally wish whoever is to blame for the rule removal be tired-n-feathered!! and PS make him or her refund all the bribe money paid to remove it in the first place. Of course that is just a little person's opinion.
Naked short selling is already illegal. Why should the SEC need to ban it? They merely need to enforce existing law - which is their job.
I don't consider bringing back the uptick rule at all impossible, particularly in the current climate. Our elected grandstanders are already blaming this financial mess on its demise and promising heaven if we only get religion again. 🙂 And, yes, there seems to be little sense approaching them without a suitcase of cash.
But the uptick rule has never made sense and never stopped anything. I've NEVER had a short sale stopped by the uptick rule. I have had it make a short more profitable for me by forcing my sale to occur at a higher price. The only time I'ce had a short stopped is because the broker couldn't get stock to sell - the already-illegal naked short ban.
You don't get screwed by shorters. You get screwed by by the pap put out by brokerages and the popular press telling you to keep buying, stocks can only go up. When you learn to ignore them, you can make money.
There is a good argument that shorters help you by putting at least a bit of control on that raging bull and by providing a floor as they buy back to cover their shorts.
Quit being a True Believer and look at what is actually happening.
Play the video. You'll understand clearly, I believe, why Carl may have gotten confused. In fact, the uptick rule, noy naked shorting, may be the subject intended for this discussion by Adam. Maybe he should be asked.
The SEC is cracking down on naked short selling which is privy to brokers, I don't see what this has do with the uptick rule, there is no way in hell they will re institute it. I don't care what anyone says, most politicians are for sale! There is NO QUESTION the removal of the uptick rule has given these big fat cockroaches a license to steal from the little person who most deserves a reward.
It looks like they have changed the rules again
http://online.wsj.com/article/SB121614248005255151.html?mod=rss_whats_news_us_business
The Securities and Exchange Commission announced an emergency action aimed at reducing short-selling that targets Wall Street brokerage firms as well as Fannie Mae and Freddie Mac, and will immediately begin considering new rules to extend new requirements to the rest of the market.
Carl - Sorry; I misunderstood where you were coming from. The uptick is not back - yet. Short selling is being blamed for the collapse of FRE and FNM share prices. Since when did any gov't agency have a responsibility to bail out the shareholders of these companies, anyway?
Cox, head of the SEC, has proposed banning naked shorting of FRE and FNM, along with other financial stocks - like this is going to keep present holders of these stocks from running for the exits.
http://www.bizjournals.com/sanfrancisco/stories/2008/07/14/daily36.html?ana=from_rss
http://www.forbes.com/2008/07/15/bernanke-cox-update-markets-econ-cx_md_0715markets27.html?feed=rss_news
As mentioned, naked shorting is already illegal, so why a ban of an illegal practice? You can still short any of these stocks through your American broker, as long as that broker can borrow shares for you to sell. As any shorter knows, a percentage of the time you will get back a message from the broker that he cannot find shares to borrow, so you cannot short.
CNBC broadcast much of the Congressional hearings with Cox. Much grandstanding by our fearless leaders, as is to be expected. If they didn't make you sick, they should have. This is REALLY the most important problem we have?
.....the reason is very simple - they were preparing the path to bring about the massive downturn in the markets soon to happen and clearly flagged on the large timescale chart fractals....this had been planned and decided upon back in 1988 to have a deep and serious correction, this allows the naked short selling to .....you should not be afraid of it, just short sell with them via CFD's or reverse ETF's - take your money , celebrate and wait for the upturn - which will probably coincide with a reinstatement of this rule to create the fractal planned uptrend.
Jay, I have no problems with your proposal, actually, but that doesn't answer my question. I'm very unclear about what Adam is saying here. Is the uptick rule back in place? The headline makes it sound like it was quietly re-instituted, but nothing else in the Adam's blog leads to that conclusion.
Carl - I'll ask again: If you have to short on an uptick, why shouldn't you have to buy ona downtick?
Give me a reason other than the market couldn't reack the idiotic heights it did in 2000 without it.
You were right on the button!!
It was insane to change this rule, institued sfter the Great Depression to protect the little guy from the vultures
LET'S RE-INSTITUTE IT!!
I am confused by your headline. Are you saying that they have changed it back, and quietly re-instituted the uptick rule to cover up the folly of eliminating it?
If someone is a member,do you give information on which stocks to short? Thanks, Wes
---
Hi Wes,
Our "Smart Scan" tool can help you find markets that have been trending in a positive direction as well as those trending in a negative direction. Then you can use our Trade Triangles to determine when to enter on a long/short position, when to exit a long/short position and then when to reenter.
Here is a video that shows you what Smart Scan can do. Check it out and give me a ring or shoot me an email if you have any further questions. http://club.ino.com/join/whatyouget/smartscan/
Best,
Lindsay Thompson
Director of New Business Development
INO.com & MarketClub.com
If an uptick is required to sell short, why shouldn't a downtick be required to buy long?
Come on, guys, we all know almost all shorts have to be covered by a buy of the stock and that provides support as a falls and a floor to its fall. The griping about removal of the uptick rule is simply people who bet the stock would rise (often not appreciating that stocks never go UP forever and must fall) and we're wrong. They are simply pissed the shorts were right and making money. Shorts take a bigger risk than longs. Their risk is potentially unlimited; the risk of longs is limited to the money they put up to buy.