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Report: Rep. Frank Says Uptick Rule Should Be Restored 'Within a Month'

Rep. Barney Frank (D-Mass.), the head of the House Financial Services committee, said that the SEC should restore the so-called "uptick" rule within a month, Reuters is reporting.

The uptick rule forces short-sellers to sell at a price higher than the previous trade. It was put in place by the SEC following the Great Depression and rescinded in 2007.

Here's a good explanation of the rule and its possible impact, from TheStreet.com:

"The rule was designed as a guardrail that slowed down the short-selling process, preventing shorts from driving the price of a stock at a faster clip.

In a short sale, an investor borrows stock from a broker, sells it to other investors, and hopes to buy it back at a lower price later before returning it to the original lender. The difference in the transactions is kept as a profit.

The SEC made the controversial decision to eliminate the uptick rule in June 2007 after its analysis showed it did little to prevent the manipulation of share prices. Of course, many market participants point to the move as the catalyst that helped short sellers thrive in 2008.

Even Federal Reserve Chairman Ben Bernanke, testifying before Congress, said if the rule were still in place it "might have had some benefit" in preventing the market meltdown."

"I've spoken to Chair (Mary) Schapiro of the SEC. I am hopeful the uptick rule will be restored within a month," Frank said, Reuters reports. "Mary is moving towards the uptick rule, which some people think is very important, some people think it's not important, nobody thinks it does any harm. I think that will go back (into effect)."

-- Frank Ahrens
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By Frank Ahrens  |  March 10, 2009; 12:57 PM ET
Categories:  The Ticker  | Tags: Barney Frank, uptick rule  
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Comments

That's the first rational thing to come out of Barney Frank's mouth. I'm glad he "gets it." It was always beyond my comprehension that the SEC would eliminate the one small bump in the road that was proven to slow-down free-falls. I don't care what their analysis showed in 2007, we have seen its elimination in action. I'm not anti short-seller, just anti gang.

Posted by: Dave_in_TX | March 10, 2009 2:36 PM | Report abuse

...let's just make it illegal for investors to lose money in the stock market. That way a company can't do anything to delete the value of its shares...and what happened last year would be illegal not for the *shorts* but for the management of the companies themselves!

Oh wait but we already have such a rule, and the penalty is the the corporate management is liable for corporate mismanagement!

So what's the REAL problem? Our own f-ing government isn't letting these companies fail!

Posted by: dubya19391 | March 10, 2009 5:43 PM | Report abuse

...if we attempt to legislate away all of our problems, then all of our problems will be due to either insufficient legislation or overreliance on legislation. Either way who gets to write the legislation. It's only natural that a congressman would attempt to solve this problem through legislation. The problem has nothing to do with legislation, it's an inherent problem with the stock market: people get taken to the cleaners. Mucking around with more legislation only makes the situation worse. But when people see it as the solution and not the problem then the problem becomes catastrophic. Our entire system is going to fail behind the past 25 years or so of Congress mucking around with it. This is a simple issue. People made promises to pay that they couldn't keep...they made so many promises to pay so much money, so much more than they could raise, that now the entire system is suspended on their backs. All I can say is that if we keep writing laws to solve our problem the government is going to become more and more of the "fix" and eventually it's all going to depend on the governments ability to pay its dues, itself. When that is gone, don't ask why the whole country has failed. Someone has to pay for their stupidity, somewhere, somehow and you cannot ask the smart people to pay all the bills for all the stupid people. They're just not going to stand for it. The smart people will cash in their chips and go home.

Posted by: dubya19391 | March 10, 2009 5:54 PM | Report abuse

...because fundamentally short-selling is necessary just like credit is necessary. If you try to say that short-selling is the problem then you wipe out a fundamental source of shares for longs to buy and hold.

The reason that shorts drive down the market is that there is a lack of faith in the market. It's quite possible that there is a lack of faith in the market because the market simply sucks! You cannot solve this problem by banning short-selling. Some companies simply deserve to be sold short. You cannot credibly expect investors to go long on an underperforming market, and blind faith in the market is the key to losing your shirt.

But trust a stupid congressman or two or three hundred to try to do just that. Now that, of course, the market has lost 50% of its value. Blame it on the lac of an "uptick rule" and see how far that gets you. You really have to wonder if that is the real reason that the market was up 300 points today, because investors could no longer short the hell out of Citibank and some of these other companies that are constipated with CDOs. So fine: manipulate the market through legislation and see how well that works. The smart investor will get rich either way.

Posted by: dubya19391 | March 10, 2009 6:33 PM | Report abuse

The up-tick I would like to see is the voters of Massachusetts up-tick Barney Franks right out of Congress. This idiot has cost the citizens of this country literally trillions of dollars and yet they re-elected him to Congress.

Posted by: mike85 | March 10, 2009 7:34 PM | Report abuse

Over the past few months we've watched helplessly as PREDATORY SHORT-SELLING has unecessarily drained away the value of the retirement funds in our IRA.

My husband and I are retired, and have a portion of our IRA funds invested in one of our Nation's strong banks (yes...there are some out there). Careless, broad-brush comments by the media and Congress about "bank nationalization", without distinction between strong vs. weak financial institutions, fueled predatory short-selling of all financial institution stocks, further weakening the industry.

I wrote to President Obama and the Senate Banking Committee a few weeks ago on our concerns about PREDATORY SHORT-SELLING, the link to careless comments about "bank nationalization", and how our retirement funds have been unecessarily impacted.

Wall Street has clearly demonstrated that without regulation, its interests are for the few--not the many. Our retirement funds have taken an unecessary hit because of short-selling greed. By all means--the uptick rule should be reinstated.

Elaine--Michigan

Posted by: mendelin | March 11, 2009 7:38 AM | Report abuse

People keep missing the point on this issue. The SEC pilot study on the removal of the uptick rule did show a small difference in annual return that amounted to a 4-5% lower return on stocks without the uptick rule. The SEC ignored that data because 4-5% is not a lot right? Well, if your average annual profit is 7%, 4-5% is almost 2/3rds of your total average annual profit.

People are missing the point because they think a little thing like a penny uptick can't possibly make a difference. Little changes in dynamics can have big effects. Think Butterfly Effect. This downturn was no worse than others we have seen in the past 70 years, but the effect was much greater than in the past because the uptick rule is gone.

Posted by: NonLinear | March 14, 2009 9:00 AM | Report abuse

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