The Securities Traders Association and the Securities Industry and Financial Markets Association are planning to fight the possible reinstatement of the uptick rule in the wake of the federal crackdown on short sales. The uptick rule, abolished last year, requires short sellers to conduct transactions only if the market is going up. Following the Securities and Exchange Commission's move to limit short-selling in bank stocks, U.S. representative Gary Ackerman (D-NY), senior member of the House Financial Services Committee, is pushing a bill that would require the SEC to reinstate the so-called price test. While the bill is still in draft form, it could force the SEC to limit short sales further.
"It's like going back in time," fumed one exchange executive. The uptick rule was abolished because it was impractical and virtually impossible to enforce, as it is difficult to correlate market gyrations with trades on a micro-second level during analysis. Nevertheless, Ackerman believes that bringing back the rule would curb short-selling abuses. "In the wake of the elimination of the uptick rule, many volatile stocks that the regulation was designed to protect are being driven down as a result of manipulative short sale practices," he said in a statement.
John Giesea, president and ceo of the STA, said the industry group will continue opposing the rule and is planning to discuss the matter with its board, particularly in light of SEC Chairman Christopher Cox saying he isn't apposed to reinstating the rule. A SIFMA spokesman said the organization will address the issue in due course. The two groups are working on putting together a list of exemptions needed from the immediate short-sales restrictions for both equities and options market makers. The SEC is rumored to be open to the exemptions. An SEC spokesman declined to comment.