Bid and tick tests would require all market participants to retool their systems at significant expense.
Regulation SHO also established a one year pilot that suspended the tick test under Rule 10a-1 for about one third of the stocks in the Russell 3000, for sales in securities in the Russell 1000 index executed after 4:15 P.M., and for sales in all other securities between the closing and the next day opening of the consolidated tape the next day.
(35) The SEC then did remove the tick test, with compliance due on July 6, 2007.
The SEC, on the same day that it voted unanimously to repeal the tick test (August 14, 2007), also tightened Regulation SHO in one key respect.
As noted above, even those emphasizing short selling's benefits indicate that it can increase market volatility, so the sharp rise in volatility in 2007 (see the VIX Volatility Index figure below) emerging almost simultaneously with the repeal of the tick test made short selling a target.
Those defending short selling argued that short sellers exposed financial firms' serious underlying problems, that the market crisis and economic uncertainty had increased volatility, and that any asserted causal link between the repeal of the tick test and increased volatility was spurious.
An NYSE-Euronext-sponsored survey of corporate issuers reported that [r]esults from the Short Selling study indicate very clearly that a large majority of CEOs, CFOs and IR professionals (75%) favor restrictions on short selling activity during periods of stock price volatility and fully 85% favor reinstituting the 'tick test' rule.
Legislators, including House Financial Services Chair Barney Frank and Senate Banking Committee Chair Christopher Dodd, called for reinstatement of the tick test, and Senator Ted Kaufman of Delaware introduced a law to that effect.
(92) The SEC repealed the tick test at that time, but Credit Suisse argued that there was no causal connection between the two conditions.
The Opinion Research Corporation survey completed for the NYSE said that "[r]esults from the Short Selling study indicate very clearly that a large majority of CEOs, CFOs and IR professionals (75%) favor restrictions on short selling activity during periods of stock price volatility and fully 85% favor re-instituting the 'tick test' rule." (128) As noted above, numerous legislators advocated strongly for a reinstatement of a price test for short selling.