Posted on 08/13/2007 6:51:42 PM PDT by shrinkermd
...Another factor some traders say is causing turmoil: an arcane rule change -- referred to as the "downtick" rule -- that kicked into effect in July that makes it easier for investors to bet on stock-price declines. Before July, investors typically had to wait until a stock was actually rising to bet on its downfall.
Lots of selling can feed off itself, prompting nervous investors to sell more, which adds to volatility. Often, heavily shorted stocks can be particularly volatile.
The old rule generally prohibited the shorting of a stock while its price was falling, or experiencing a "downtick" in trader slang. The rule was instituted after the 1929 market crash in order to discourage avalanches of short sales to push a particular stock -- or even the broader market -- precipitously lower.
In a traditional short sale, investors borrow shares and sell them, betting the price will fall and that they will be able to buy the shares back later at a lower price for return to the lender. Short sellers are sometimes blamed for big rallies as well as stock declines. During one recent July rally in Intel Corp. shares, some investors blamed the move on a frantic exit by short sellers who had thrown in the towel on their bets.
...But Ingrid Werner, a professor of finance at Ohio State University that has studied the impact of the rule change, says repealing of restrictions on new short-sales should only have an impact on price movements over periods less than a half-hour, not the entire day. "The repeal of the rule has nothing to do with the volatility we see on a day-to-day basis," she says
(Excerpt) Read more at online.wsj.com ...
I’m glad to see this.
True, it really was an outdated stupid rule.
ditto. I’m glad the uptick rule is dead.
I remember the old Wall Street caveat:
“He that sells what isn’t his’n
Must buy it back or go to prison.”
I think the downtick rule related to filling the order not placing the order. wsj guy not well informed or am i wrong. I placed some short orders in my time.
I think the downtick rule related to filling the order not placing the order. wsj guy not well informed or am i wrong. I placed some short orders in my time.
Glad to see it gone too. If you can’t handle the volatility, don’t play in the markets.
or the Will Rogers saying, “ Buy a good stock, if it goes up sell it. if it doesn’t go up don’t buy it.”
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