The "Uptick Rule

Could someone post an understandable discription of the "Uptick Rule"? Been trying to get my mind around it, but I could use some examples.

I'll give it a go. The "uptick" rule was instituted to prevent "piling on" a stock and driving its price down as more and more "shorters" sell. The rule says that when shorting a stock the sale must be at a price higher than the last sale executed. This means that the sale is executed when the stock price is on the way back up.

Basically Uptick Rule results in a short sell that breaks the downward trend, as short-seller has to sell at higher price than the seller before it.

This ensures that short-sellers do not create the downward trend, just betting on it. This put cooling effect on any artificial sell-offs. Not ideal tool, but quite reasonable and business-friendly.

Steve Forbes in WSJ on 03/06 advocated the move to restore the rule (among other things, things that should be implemented, too along with a discard of Obama’s pet agenda).

It’s not a silver bullet, of course. A short-seller who believes the price trend is downward is still motivated to sell, he just has to wait until he can find someone willing to pay a fraction of a cent more than the previous sale, moving the ticker a fraction upward before it can resume its expected downward slide.

One major problem was that there was no corresponding brake on unbridled bullish speculation. Other than margin requirements (which also apply to short-selling, by the way) there was, and is, nothing preventing a someone taking a long position from relentlessly buying on margin to pump the stock's price up to an irrational level. Restrictions on downside speculation without corresponding restrictions on upside speculation create an upside bias in the market.

What's wrong with that, you may ask? This crash was not caused by the shorts, any more than was the '29 crash. Both crashes followed an unsustainable and irrational bubble in stock prices. It was the "longs" who really caused both crashes, not the "shorts".

Market regulations should be price-neutral. It is not the SEC's, nor any other government agency's, job to make sure that stock prices go up. Stock prices should accurately reflect the value of the underlying business, whether that is good or bad for the investors in that stock. Long term equity growth should be driven by long term economic growth, not by ginning the system to give the bulls an advantage.

That’s a very good point!

Why people don’t like to see investors driving down the share price of a company, many people suspect the reason that we have large bubbles like the internet/tech bubble is because there are more restrictions to short-selling than buying long.

Ultimately there isn’t too much of a difference between buying long and short selling:

— Buying Long: Buy now, Sell later — hold view that the stock will go up in price

— Short Selling: Sell now, Buy later — hold view that the stock will go down in price

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