JCA

The Up-Tick Rule Reimplementation Is Bad for Markets

Short selling forms the core of a price discovery engine that normally acts to prevent a crash. When a stock declines rapidly, short interest is the force that acts to slow the decline as short sellers buy to cover and take profit. Anything that interferes with this process causes a disorderly market and enhances downside risk. That said, long selling is far more dangerous than short selling because long sellers do not generate any buying pressure - they never reenter the market to buy at a lower price.

The uptick rule creates an asymmetric market because there is no equivalent "downtick" rule to prevent large institutions from continually buying large blocks of stock to drive the price up. The uptick rule, therefore, should not be reinstated in the absence of an equivalent rule that forces buyers to purchase on a downtick. Taken together, both rules would wreak havoc and create a totally illiquid market. reinstating the uptick rule creates half the problem.