Your questions answered by an industry expert
Time to return to the uptick rule?
On the First Business programme on Sky Business, you mentioned something about a rule that was changed or removed in 2007 which in his opinion has caused volatility in the markets. I think it was something like the kick rule. Can you give me any information on this please? Clive, NSW.
Clive, I actually covered the subject in a recent article in The Australian newspaper. The following comes from that article. The US politician Andrew Young over 30 years ago observed that: "Nothing is illegal if 100 businessmen decide to do it." When we're in boom market territory, regulators don't have the whip hand and find it hard to hold back the consensus that comes from the corridors of corporate power.In the USA, in July of last year, the regulators dumped the old uptick rule, which had been in place since 1934.
The rule was introduced to knockout a "bear raid", which in some circles has been called a 'financial crime'. Under this rule, every short sale transaction had to be entered at a price that is higher than the price of the previous trade. It was hoped that this would stop short sellers from snowballing a price slump.
There has been debate about whether the rule actually worked but the volatility on Wall Street picked up and culminated in the November sell offs of last year, which ushered in the bear market we now live in. For some months, many US commentators have been calling for the uptick rule to be re-introduced.
Given the Wall Street impact on our local as well as global markets, this uptick rule has relevance here if it is encouraging excessive amounts of speculative short selling.
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