Beyond Meat may see some additional selling pressure on Friday once short sellers are cleared from the
uptick rule restrictions.
The Securities Industry and Financial Markets Association warned that the lack of exemptions for the opening and for market markers "could negatively impact orderly markets by causing increased volatility and uncertainty around the opening and close." As per the Wail Street Journal, James Chanos, the chairman of the Coalition of Private Investment Companies, said that "the unintended consequence of this rule will be an erosion of confidence at a critical time when the economic recovery is struggling to take hold." Bill Fleckenstein, who ran a short-only hedge fund that closed in 2009, said that "the lack of the uptick rule had nothing to do with the market collapse in 2008--it was bad policies all around that created that disaster."
Only a few people from the finance industry were in favor of the uptick rule's return.
Rule 201 was implemented without a pilot study, unlike the repeal of the previous uptick rule in 2007.
Duration of Price Test Restriction : Once the circuit breaker has been triggered, the alternative
uptick rule would apply to short sale orders in that security for the remainder of the day as well as the following day;
Boehmer et al., after studying the effects of repealing the tick test, said that "we do not find any evidence that this more aggressive shorting activity destabilizes stock prices in any way, and in fact short sellers seem to be even more important contributors to efficient share prices after the uptick rule is removed." (47) Citing numerous studies, Jones wrote that [t]he empirical evidence is absolutely uniform....
We are also aware that it has been argued that there would have been less volatility had the uptick rule been kept.
The SEC says it "particularly seeks comments on the alternative
uptick rule as a permanent market-wide approach, as well as whether the alternative
uptick rule should be combined with a circuit breaker approach."
The uptick rule stated that a short sale could only be sold at price higher than the previous sale, thus ensuring an uptick on the stock price.
According to a NASDAQ report, financial stocks saw the largest increase in short sales, rising 227.7 percent from July 2007--when the uptick rule was eliminated--to July 2008.
Along with the shrinking investment universe, poor returns and the problems with the
uptick rule, that was enough to persuade us to drop the strategies from our portfolio in mid-1992.
After a spate of bear raids in the 1930's, the SEC enacted rule 10a-1, known as the "
uptick rule", requiring short trades to be made only when the stock price is increasing (Alexander & Peterson, 1999).
