New uptick rule

By Chris Peters
On April 8, the SEC announced it would consider several versions of an uptick rule intended to impose restrictions on short sales in the stock market.

The original uptick rule was proposed in the Securities and Exchange Act of 1934 and implemented in the marketplace in 1938. The purpose of the rule was to prevent “bear raiders” from manipulating stocks to excessively low levels through unrestricted short selling, often abetted by false rumors spread by journalists on the take. The rule required short sales to occur on an “uptick” — i.e., at a price higher than the last recorded price.

For the complete article, see the July 2009 issue of Active Trader magazine. Click here to subscribe.

Correction: In the original article, Chester Spatt, Mellon Bank professor of finance and director of the Center for Financial Markets at Carnegie Mellon and a former chief economist for the SEC, was incorrectly identified as Charles Spatt. Active Trader regrets the error.


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