Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. Online
January 28, 2009 12:00 AM

Uptick split

Market participants split on reinstatement of the uptick rule

Jeff Benjamin
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    The latest attack on short selling could come in the form of a reinstatement of the so-called uptick rule, which requires that a stock moves upward in price before it can be sold short.

    Many critics attribute the market's recent downward spiral, in part, to the absence of the uptick rule, which was in place for nearly 70 years before the Securities and Exchange Commission repealed it in July 2007. They claim that without the rule, short sellers fuel volatility while driving stock prices down to unrealistic levels.

    On closer examination, however, bringing back the uptick rule — while satisfying Wall Street’s critics — may do little to curb short selling. What’s more, it calls into question whether short selling should be curbed.

    The most recent show of support for the rule’s reinstatement came last month in the form of legislation introduced by Rep. Gary Ackerman, D-N.Y., a member of the House Financial Services Committee.

    “In the wake of the elimination of the uptick rule, the value of many volatile stocks has plummeted due to an onslaught of manipulative short-sale practices,” according to a statement from Mr. Ackerman’s press office.

    Stop abuses

    “Reinstatement of the uptick rule is essential to rein in these abuses and restore much-needed stability and confidence to our financial markets,” the statement said.

    Although reinstatement of the rule is still up to the SEC, and Congress has not traditionally taken to forcing the SEC to make rules, Mr. Ackerman's proposal is seen by many as a step in the right direction.

    The basic argument is that if traders are restricted from betting that stock prices will decline, the markets will stop falling, or at least stop falling so rapidly.

    This is the same kind of thinking that led to a temporary ban on short selling of nearly 1,000 financial-industry stocks after the markets started crashing in September.

    Since then, several academic studies have shown that the short-sale bans introduced in varying degrees in 17 countries have had no measurable positive effect on the markets. In fact, the bans have not prevented protected financial-stock prices from declining more than the overall market.

    “The good news is, the ban didn’t cause any lasting damage,” said Charles Jones, chairman of the finance and economics division at Columbia Business School, part of Columbia University in New York.

    He sees the uptick rule as more of the same line of thinking, but with fewer negative consequences.

    “When the uptick rule was in place, most short-sellers considered it a minor nuisance,” he said.

    According to the SEC, which evaluated the rule’s effectiveness for more than three years prior to its repeal, the core provisions of the 1938 uptick rule — designed to prevent “bear raids” — were no longer a match for the modern stock market.

    After decades of granting general and specific rule exemptions to keep pace with changes in products, practices and systems, the SEC concluded that the rule no longer made sense. The conversion of stock market pricing from eighths of a dollar to pennies in 2001 was the final straw.

    The introduction of what is commonly known as decimalization “made it too easy to create an uptick,” said Charles Gradante, managing principal of Hennessee Group LLC in New York, which advises institutional investors on hedge fund allocations. “One of the reasons the SEC dropped the rule is that it was too easy to manipulate,” he said.

    Mr. Gradante favors reinstating the rule with revisions that might make it more difficult to circumvent.

    Some suggestions include prohibiting a short sale by anyone who purchases the same stock during the same trading day, or requiring a certain percentage increase before a stock can be shorted, he said.

    According to SEC spokesman John Heine, the commission is not currently considering reinstating the rule.

    Mary Schapiro, the new chairwoman of the SEC, has stated that she favors reinstating the uptick rule, according to published reports.

    Curiously, reinstating the uptick rule has drawn a muted reaction from the hedge fund industry — the segment of the financial markets most associated with short-selling practices.

    The Alternative Investment Management Association in London declined to comment on the proposed rule change.

    Many short sellers, however, would prefer the constraints of an uptick rule to another outright ban on short selling.

    'Never a real big deal?'

    “I’ve been shorting stocks since 1989, and the uptick rule was never a real big deal,” said Geoffrey Gerber, president and CIO of Twin Capital Management Inc., a McMurray, Pa.-based hedge fund shop with $560 million under management.

    “If it was a choice of going back to the uptick rule versus the uncertainty of another short-sale ban, I’ll take the uptick rule,” he said.

    Another way of looking at the rule is that it places a government-imposed upward bias on stock trading.

    “It’s an intrusion on the free market, and I don’t see any benefit to it,” said Phil Goldstein, principal of Bulldog Investors, a $300 million hedge fund in Saddle Brook, N.J.

    Jeff Benjamin is senior editor with InvestmentNews, a sister publication of Pensions & Investments

    Recommended for You
    martin_luther_king_day_generic_i.jpg
    No P&I Daily on Martin Luther King Jr. Day
    Closed sign
    No P&I Daily over the holidays
    Happy_Thanksgiving_i.jpg
    No P&I Daily for Thanksgiving holiday
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing