That's the dilemma the SEC must be grappling with for I am sure they could not have missed the 265 pt drop in the DOW today or the May 6th, "FLASH CRASH". I have given this a lot of thought since the crash of 2008 which started in Oct 2007 right after the SEC took away the last safe guard, "the uptick rule", put in place to prevent this type of thing by their predecessor's in 1938.
Mary Shapiro, chairperson of the SEC and the other members must be sitting around a table every day just trying to figure out how to "fix" the BIG mistake they made starting back in 1998
They must be thinking, well how the hell do we get those co-located computers removed from near the exchanges which are "front running" which of course is against SEC rules.
How do we now disallow all those ETF's (Exchange Traded Funds en.wikipedia.org/wiki/Exchange-traded_fund) and especially those "double and triple" short ETF's that are used by the hedge funds to excessively short the market using their "High Frequency Trading" systems which rapid fire hundreds of sell sell sell orders to destroy a stock and lately a market because they are shorting the indices themselves and speaking of those High Frequency Trading systems, how do we tell those large players, you all know their names because we all bailed them out to the tune of billions of dollars a couple years ago and of course all those "hedge funds" that are using them too that - they can't use them anymore?
How do we change what "WE" created starting in the year 1998 which helped to create the Crash of 2008 and May 6, 2010 thus far causing the loss of 10's of Billions of dollars of regular citizens pensions, 401k, college savings and IRA's.
Well that's what I "hope" they are doing but I have my doubts because you see they have been "talking "about it for a long time now, in-fact, they and congressman Barney Frank said they would put in back soon.
("On March 10, 2009, the SEC and Congressman Barney Frank (D-MA), Chairman of the Financial Services Committee announced plans to restore the uptick rule. Frank said he was hopeful that it would be restored within a month., source wikipedia)
^ "U.S. SEC to consider about 4 short sale proposals". Reuters. 2009-04-08. www.reuters.com/article/ousiv/idUSTRE536....
Well it's been 1 1/2 years since that time and still no restoration of the "uptick" rule, not even a peep about it from the SEC, nothing, nada, not even after the "flash crash" of May 6th, still no uptick rule or any rule for that matter to protect our markets. Oh sure, if you want to count that "token" move to "ring fence" aka "circuit break" individual stocks that drop 10% or more within a few minutes. This "token" move by the SEC will not work for after a 5-15 minute "time out" the short sellers can continue to push that stock down another 10%... and the damage was already done with the first 10%.
The market continues to run wild totally manipulated by the short sellers and other Hedge Funds moving the market in one direction or another (mostly down) on each and every headline.
The point is that NO group of participants should have the ability to short a stock or an indices for the sole purpose to scare out "investors" and to do so by using "hi-tech" computer systems running programs to execute ahead of other market participants.
This goes against one of the SEC's main charges which is to "maintain" a fair and level playing field for all participants, on this count, by allowing everything I have written above to go on, they have failed.
To enforce actions against violators of the rules aka, the many "Bernie Madoffs" of the world...they have failed. I will say, that since Bernie they have stepped up enforcement and made it public and for this I commend them, but really, without a viable market it really does not matter much, does it?
The market will have another "flash crash" or a "total crash" sooner than later unless the SEC acts and acts quickly to impose the rules necessary to change this "big casino" mentality we know have in the current market. I can understand the SEC not being sure how to go about bringing the market back to a market of "investors" as the market was designed to be without causing instability that may break the very thing they are trying to fix.
I do not like to criticize without offering solutions or at least ideas so below are a few I hope the SEC will consider.
1) The reinstatement of the "uptick" rule is the primary action to correcting the current undesirable condition of the markets.
Reinstating the uptick rule would slow down the volume of short sell orders. The rule would have to now include the ETF's for they are widely used by the short sellers at this time and that is why you see all stocks going up or down at the exact same time.
2) Order the removal of the co-located computers thus taking away the advantage of receiving the data feeds first that the owners of these systems now enjoy.
3) Have one universal quote feed that everyone receives at the same time.
4) Get rid of High Frequency Trading systems completely as they serve no purpose other than to create huge volumes and trading fees for the exchanges and other parties involved. They do NOT provide market liquidity as was envisioned by the SEC because they are not "required to provide it" so either require them to provide liquidity or get rid of them. Initially the uptick rule will serve to slow them down.
5) Put specialists and market makers back in place or similar who are "required" to maintain the market liquidity.
I look forward to receiving comments on this post either for or against or questions. It is important that we participants 1) understand the problems and 2) work together to get the changes we need to have a normal "investable" market that has "hills and valleys" but not "peaks and cliffs" as this is not the sign of a healthy market.
In that spirit, I ask that if you agree with the contents of my post, please pass it around to your friends, fellow investors and traders and post it on financial websites to help get the word out. Thank You, The Street Guy
long appl and cree