Would New Rule Ease Stock Drops?

2009-04-09T02:55:00.000-07:00

Would New Rule Ease Stock Drops?
SEC Proposes Reinstating Uptick Rule to Rein in Short Selling
By MATTHEW JAFFE
WASHINGTON, April 8, 2009

Short selling is commonly defined as the practice of selling borrowed stocks, and then attempting to purchase them later at a lower price, thereby profiting from the drop in price.

SEC chief Mary Schapiro warned at this morning's open meeting in Washington that "Short selling may also be used to illegally manipulate stock prices. ... In addition, unrestricted short selling can exacerbate a declining market in a security.

"In the past 18 months, we have seen every major stock market around the world experience steep declines and extreme volatility in securities prices," she said. "Although we are not aware of specific empirical evidence that the 2007 elimination of short sale price tests contributed to this volatility in the U.S. markets, many members of the public have come to associate short selling with that volatility, and with a loss of investor confidence."
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To address the problem, the SEC today made five proposals, including reinstating the uptick rule, which makes short sellers wait to sell shares until a stock trades at least a penny above its previous trading price.

"This is a very good rule," said Hugh Johnson, chairman of Johnson Illington Advisors in Albany, N.Y. "It's very favorable, it's very positive, but it's long overdue. It prevents aggressive speculators who don't even own the stock from selling the stock or driving it down without any constraints or limitations or rules."

The uptick rule was originally established in 1938 during the Great Depression as a reaction to the stock market crash of 1929, but the SEC repealed it about two years ago.

"It caused a lot of problems," Johnson said of the rule's absence. "If you continue to drive the price of, say, Citigroup, down, that's got to scare the depositors and short-term lenders. They start to ask the question 'Will this company stay in business?' And if their answer is, 'Well, I'm not sure,' then as a depositor you may pull your money and as an investor or short-term lender you may refuse to roll over your loans to Citigroup, which puts Citigroup in a very tough spot."
The New Uptick Rule

Today's five proposals also include another version of the uptick rule and three versions of a kind of "circuit breaker" for stock prices.

The variation of the uptick rule, known as the upbid rule, would make short-sellers only able to come in at a price above the existing highest bid for the stock.

The "circuit breaker" variations would be like a "time-out," halting short-selling on a stock for a period of time, such as the remainder of a trading day, when there is a severe decline in its price.

The new uptick rule would be broader than the old one because it would now apply to stocks traded on all exchanges, rather than only the New York Stock Exchange, as with the original rule did.

"It's about time," Johnson said of the proposals. "It's almost as though, like a lot of regulation, it comes after the crisis, not when it should come, which is before or at least during the crisis."

After this morning's vote, the five new SEC measures now get posted for 60 days of public comment before any final rules are applied or implemented, so it will be months before any proposal ultimately takes effect.

Along with last week's changes to the mark-to-market accounting rule by the Financial Accounting Standards Board, today's uptick rule changes will come as welcome news to the markets.

"You can't quantify how much of a part of this crisis they were but, at a minimum, you can say they aggravated the crisis and that's really putting it very politely and very mildly," Johnson of Johnson Illington Advisors said. "The crisis was worsened by the failure of SEC to change the uptick rule and the failure of the FASB to change the mark-to-market rule. These guys just didn't respond to the crisis."

President Searching With a Fine Tooth Comb

2008-09-04T08:41:00.000-07:00

With the race for the President's post heating up, the question on everybody's mind is "Who will be the next President of the United States?" And this is not merely a question that remains limited to the minds of its citizens. The size of the United States of America, in terms of both geography and economy, as well as the power it wields over the international affairs, makes its Presidential elections a matter of global concern.

So will the 2008 elections herald a change in command for the U S of A? Will the Democrats once again take center-stage after losing out in the last two elections? Or will this be yet another victory for the Republican party? Perhaps, that is a question that should be fielded to the American voters... Who will they be voting for?

After the two terms of Republican President George Bush, it seems likely that there will be a change in the party at the center. But if this were to be true, who would the likely Democratic candidate be? Currently, Hillary Clinton appears to be the favorite candidate of the Democratic Party. However, she will be getting some decent competition from Barack Obama.

So will the 2008 elections usher in a new era? Will there be a woman president at the helm? Or will a black man enter the White House? Both would be firsts in the history of the American democratic system. But who would win this race?

The charismatic Obama is currently the only African American in the American Senate, and he is only the fifth African American senator in the history of the United States. Sure, he is hugely popular among a vast cross-section of American society, but would he be able to stomach a hard campaign?

Hillary Clinton has been the favorite for the 2008 elections for a long time now. Currently, the likelihood of her getting the candidature is very high. But in the rough and tumble of politics, who knows when the tide might turn, and in whose favor.

Perhaps it is time that one of the greatest democracies of the world and the current superpower, made a deviation from the usual President type -- a white male. Both, women and African-Americans have made their presence felt in the society and political system of the great nation. It is time that a new attitude is allowed to pervade the White House.

Who will it be? Who will the American nation vote for? Let us just wait and watch.

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Would New Rule Ease Stock Drops?

President Searching With a Fine Tooth Comb