The Up Tick Rule

Author: Monty Guild

 

The government's ruling that non borrowed shorts would not be tolerated in the 19 primary dealers of US government securities has led to a big rally in financial stocks. Will it continue? Clearly a lot of financials are not strong and do not deserve to go up. Some financials are fine and deserve to go up, but now the illegal shorts have become front page news and the world is aware of them.

Jim Cramer, a well known US TV personality and former money manager, is on TV today shouting about the Bush administration and The SEC allowing the up tick rule to expire. He is pointing out how the removal of the rule has created the downside volatility and some of the panic that the US stock market has experienced recently. He argues that the shorts have been bullying stocks and they have caused a lot of panic that would not have occurred if the Bush administration had not ignorantly allowed the up tick rule to expire. He further suggests that the rule should be a 10 cent up tick, not a 1 cent up tick as it was before (the up tick rule stated that a stock must move up at least one cent before a short can be instituted).

If Mr. Cramer and others who are pushing for reinstatement of the up tick rule and the end of naked shorts everywhere succeed, this will definitely move toward ending stock bullying by shorts and will move toward stabilizing the market for financials and other stocks that have recently been battered down.

Clearly the government has the power to squeeze shorts and destroy longs. If market rules are changed fortunes can be made and lost in moments.

Let's keep an eye out for government action. Mr. Cramer's rant today seems like a political call for help by the average American shareholder and in the current election year a lot of politicians may listen.

Respectfully yours,
Monty Guild

Explicação....

Regra do uptick

A Regra do uptick foi uma regra aprovada em 1932 nos EUA, na sequência da grande depressão e do crash de 1929: neste crash os vendedores curtos (short sellers) foram vistos como um bode expiatório para a queda e depressão económica, e foi assim aprovada uma regra que os limitava na sua actividade.

Essa regra era a uptick rule, e dizia simplesmente que uma venda curta apenas podia ser efectuada num uptick, ou seja, numa variação positiva da cotação face à cotação imediatamente anterior. O objectivo da regra era impedir que vendedores curtos pudessem vender "dando" papel no comprador e pressionando os preços em baixa.

Em 6 de Julho de 2007 finalmente, esta regra foi revogada. De notar que após cada crash substancial tendem sempre a ser procurados bodes expiatórios e a serem aprovadas regras que os visam limitar, sendo que por exemplo no crash do nasdaq os bodes expiatórios foram os daytraders, tendo então sido aprovada a Pattern daytrader rule (regra do daytrader padrão).

Mesmo enquanto a regra do uptick esteve em validade, ela não se aplicava aos market makers (a exemplo de outras regras, por exemplo a do naked short selling).  poixxx...como o Mr.Turn disse, "há os filhos e os afilhados"...

Fonte: thinkfnwiki



Uptick Rule

A former rule established by the SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines. The SEC eliminated the rule on July 6, 2007.

The uptick rule was also be known as the "plus tick rule".   

By entering a short sale order with a price above the current bid, a short seller ensures that his or her order is filled on an uptick. The uptick rule is disregarded when trading some types of financial instruments such as futures, single stock futures, currencies or market ETFs such as the QQQQ or SPDRs. These instruments can be shorted on a downtick because they are highly liquid and have enough buyers willing to enter into a long position, ensuring that the price will rarely be driven to unjustifiably low levels.

Fonte: investopedia


E um comentário que li na altura...

Abolishment Of The Short Uptick Rule- How Will It Affect Your Trading?
http://www.themoneyblogs.com/steve/my.blog/abolishment-of-the-short-uptick-rule-how-will-it-affect-your-trading-.html

Tinha isto para aqui...

Definition:
The uptick rule was a trading regulation that applied to US stock markets to prevent entering a short trade unless the previous trade was an uptick (a trade at a higher price than the preceeding trade). The uptick rule was implemented by the US SEC (Securities and Exchange Commission), to limit the influence that short trades could have on the stock markets (in other words, to keep the US stock markets from declining). The uptick rule was removed on July 6th 2007, so from that date onwards, short trades could be entered at any time regardless of whether the previous trade was an uptick or downtick.

Uptick Rule Requirements
When the uptick rule was in place, a short trade could only be entered after a trade that caused the last price to increase. For example, if there were a sequence of trades at 125.67, 125.66, and 125.65, no short trades could be entered, but if the next trade was at 125.66, short trades could then be entered.

Uptick Rule Controversy
Some traders (primarily buy and hold investors) believe that the uptick rule was a good restriction, and that its removal has caused the US stock markets to trade erratically because of an increase in volatility. This is a flawed theory, that is based upon the belief (or hope) that stock markets should only go up. In reality, the removal of the uptick rule has evened out the volatility, because short trades can now occur at their natural times, instead of all happening at once (i.e. in groups every time there was an uptick).

The uptick rule was just a way of trying to keep the US stock markets up artificially. The European markets have never had an uptick rule (nor anything similar), and these markets have never had a problem with either volatility nor erratic trading. With the removal of the uptick rule, the US stock markets are able to trade according to their natural market dynamics.

Also Known As: Rule 10A-1



Relembrando...

S.E.C. Ends Decades-Old Price Limits on Short Selling
http://www.nytimes.com/2007/06/14/business/14sec.html?_r=1&dlbk&oref=slogin


SEC Votes on Regulation SHO Amendments and Proposals; Also Votes to Eliminate "Tick" Test
http://www.sec.gov/news/press/2007/2007-114.htm


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