Bring back the uptick rule
The other day we noted that bear raids had become easier since the uptick rule (which places some limits on short selling) was suspended in July of last year, just about the time that the stock market started its wild gyrations. The Telegraph reports a cautionary tale of short selling in London. A hedge fund based in London set up a “dirty-tricks unit” to manipulate stock prices. As a result, traders allegedly made £100m from the 17 per cent slump in HBOS shares:
As the official hunt began for the rogue traders who tried to bring down Britain’s biggest mortgage lender, HBOS, The Daily Telegraph can reveal a whistle-blower’s account of how a multi-billion pound fund allegedly used illegal tactics to drive down stock prices.
Private detectives were allegedly employed to hack into executives’ emails and telephone records. Front companies were set up to allow the hedge fund traders to pose as independent researchers or journalists. Negative information on companies was then distributed to leading investment banks in the hope that rumours would spread and some share prices would fall.
The hedge fund, which cannot be named for legal reasons, stood to make millions from “short-selling” the shares as they fell in value. The allegations — made in a sworn statement seen by The Daily Telegraph and which has been sent to financial regulators — will add to growing concern over the activities of rogue traders in the City.
Of course these things are going on in the US as well. Why make it any easier for computerized bear raids on shares that profit traders but do no one else any good at all? The uptick rule, which allows a short sale only after an uptick in a previous trade, could short circuit at least some of this skulduggery. Bring back the uptick rule now.
March 23rd, 2008 at 8:40 pm
IMHO the real malefactors have been the investment banks that fabricated toxic mortgage securities and the rating agencies that issued investment-grade ratings. IMHO most stock manipulation is done to get the public to buy: in many cases, I suspect, done by the very investment banks that created CMOs. Selling short should be regulated along with the rest of the market, but it shouldn’t be turned into a scapegoat. What are Cramer’s proposals for rectifying the underlying abuses in the mortgage mess?
When short selling was mentioned previously at Dinocrat, I commented:
My opinion on another occasion was that much of the current mess is due to the lack of transparency (and that regulation can stifle the formation of competitors to the entrenched big players).
Certainly the SEC should be monitoring how uptick-free short selling is going in a declining market, but I see no immediate reason to retreat from my previous remarks.
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I have to think more about this sentence in the post:
Who is qualified to discern the distinction between trading profits and social utility?
October 20th, 2008 at 11:35 pm
First of all id like to say that the post by “gs” is completely wrong and it sounds to me like gs works for the SEC….look at the decline since that confident post in March….its all about the uptick rule and the u.s government must seize the SEC with the F.B.I (at gun point if nessessary)to stop this mass nationwide scandal led by Christopher Cox and the SEC.