Uptick Rule

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yousha
Posts: 155
Joined: Tue Jun 12, 2018 2:36 pm

Uptick Rule

Post by yousha » Thu Dec 06, 2018 5:00 pm

Why was the uptick rule eliminated?

senex
Posts: 100
Joined: Wed Dec 13, 2017 4:38 pm

Re: Uptick Rule

Post by senex » Thu Dec 06, 2018 5:46 pm

There is some academic research suggesting that markets are more efficient (better price discovery, lower spreads, etc) without it.

An uptick rule creates an asymmetry: in certain cases your selling price is more constrained than your buying price. Hence the inefficiency.

That asymmetry may or may not be defensible. Some people want an asymmetry (short selling ought to be more restricted than margin buying) because people are more panicky about falling prices than rising prices. Others desire symmetry because margin is margin, and without symmetry there is a systematic bias toward overpricing securities, which then ripples into all sorts of consequences (including spreads, liquidity, etc).

Note that the SEC has since re-instituted a short sale price test, but it is different than the original uptick rule and is only active at certain times, which is a bit of a compromise between the two camps.
Last edited by senex on Thu Dec 06, 2018 5:51 pm, edited 1 time in total.

quantAndHold
Posts: 2031
Joined: Thu Sep 17, 2015 10:39 pm

Re: Uptick Rule

Post by quantAndHold » Thu Dec 06, 2018 5:51 pm

Seneca is correct there’s no downtick rule, why should there be an uptick rule?

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