Friday, June 29, 2007

Uptick Rule Gone for Good

After years of discussion, pilot tests and hearings, the so-called “uptick rule” is gone for good. On June 28, 2007, the SEC issued its final rule amending Regulation SHO. The ruling eliminates Rule 10a-1 requiring price tests for short-sales and adds Rule 201, which prohibits any of the Self-Regulatory Organizations from requiring price tests on their own. The Nasdaq is immediately affected because it has a “bid-rule,” which restricted short sale activity on securities in its Nasdaq Global Market.

Those price tests date back to the 1929 stock market crash, after which investors called for reform of financial markets. Sounds familiar, doesn’t it? The SEC stepped forward with the “uptick rule,” which prohibited sell a stock short at a price below or equal to its preceding reported sales price. Then in 2005, the SEC undertook studies and determined that the price tests made no difference in stock pricing.

It took two more years to get a final rule out the door. However, the SEC was not dissuaded by the opposition of small companies concerned about stock manipulation. Effective July 6, 2007, there will be no more price tests for exchange listed securities. The uptick rule never applied to over-the-counter securities, where some of the worst manipulation occurs. Time will tell whether anyone will really miss those price tests.

1 comment:

Travis said...

Hello from September 2008. Just wondering if anyone is missing this rule now......