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8/30/07

IHT: Why the markets' roller coaster seems wilder? -" because the uptick rule was abolished" - by Gretchen Morgenson

For the complete report from the International Herald Tribune click on this link

Why the markets' roller coaster seems wilder? -" because the uptick rule was abolished" - by Gretchen Morgenson

"Periods of volatility come and go, of course. The question is: Are the recent wild swings temporary, or are they a result of fundamental changes in the makeup of the markets?

Naturally, as with everything market-oriented, the factors that are of concern are related. Item 1: The Securities and Exchange Commission's elimination in July of the uptick rule on short sales. This regulation was put in place in 1938 to defang so-called bear raids on stocks, when sellers ganged up on companies' shares and profited by driving them down. The uptick rule required that anyone shorting a stock - selling shares he or she does not own in hope of making a profit - can do so only on an uptick in its price. But the SEC got rid of the rule July 6, after it concluded that such restrictions "modestly reduce liquidity and do not appear necessary to prevent manipulation."

"The SEC took away the short-sale rule and when the markets were falling, institutional investors just pounded stocks because they didn't need an uptick. We have to look at that and say, 'Did that influence and add to the volatility?' "

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