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Was the Removal of the Uptick Rule Stupid?

The “Uptick Rule” was removed back in 2007 after a pilot study said that no manipulations occurred.This is what the pilot study found

“The general consensus from these analyses and the roundtable was that the Commission should remove price test restrictions because they modestly reduce liquidity and do not appear necessary to prevent manipulation. In addition, the empirical evidence did not provide strong support for extending a price test to either small or thinly-traded securities not currently subject to a price test.”

Not to be offensive, but isn’t this the most stupid think that you’ve ever read?  Here is my take on why this is stupid, or maybe why the pilot program supporters think the American people are stupid.

So basically somehow the push to remove the “Uptick Rule” was put into place, not sure how but I’m guessing lobbyists?  So the government removes the uptick rule for some of the largest stock for this pilot program.

These are the reasons that such a study is STUPID!

  1. If the lobbyist (who I assume are spending money to do this) are pushing to get such a rule removed, why would they sabotage their own efforts by taking advantage of temporary removal of the rule?  If the lobbyist (probably hedge funds) did take short-term disadvantage of the rule remove, wouldn’t that make the hedge funds (or lobbyist) stupid?
  2. The pilot was done in the best of time, not the worst of times.  The major advantage of the uptick rule is protection for the worst of times occurring.  Plus, if you run such a pilot program when time are good, who is really shorting much then anyway?
  3. If the rule had no effect on the market, then why not let it stay?  Instead they removed it and in a few short months boom, we have “The Great Recession”!
  4. The ones who would most benefit from the removal are those that least need any help in the stock market.  Everybody talks about Rich getting richer, well here is a direct effect and cause of that saying.  It’s like having an average person fight Mike Tyson, but tying that average persons left arm behind their back.  Would you fight such a fight, or does it sounds pretty stupid to you?  Well, removal of the Uptick rule is at that same level of stupidity..

Now I could say that I believe some agency should investigate to see how those involved with the removal of the “Uptick Rule” has fared from an increase in “Net Worth” perspective after the removal if the uptick rule.  But I’m not going there and giving them the benefit of the doubt.  Why not put it back into effect?  The worst that could happen is that the Uptick algorithm would slow down market trades a bit (a reducing in liquidity, but just a little), but is this such a bad thing?  For smaller stocks, the Uptick rule would practically have no noticeable change in transaction speed at all.  I don’t think it’s that important to have more than 1 thousand trades per second for any given stock, do you?  I know I don’t trade that fast, personally.  I like a quick execution time, but I have to wonder what the ratio of human verses automated trading is happening currently?  Are we fighting a machine?

Check out this video at site:  Trading in Johnson & Johnson in 1/2 second.

Okay, I put my “main street” take on the removal out there.  But I also understanding computer systems, I can imagine that their might be some legitimate reasons for the removal, and I invite any that know those reasons to speak up in the comments below!

In conclusion, what I really wonder about is if government is trying to destroy the stock market for the little guy, or trying to help the Rich get Richer with the disabling of the “Uptick Rule” and the gutting of Glass-Steagall act (thanks Bret @ Hope to Prosper for the comment about Glass-Steagall!

What do you think?  Are you thinking WTF is going on anymore?  Are we normal main street investors really being taken advantage of?  if you want to read more, check out my original writeup on this called “Where is the Uptick Rule“.

I’m still upset about this!




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