NYSE chief looks to reinstate a version of the uptick rule

By Anuj Gangahar in New York

Mounting political pressure will result in an incarnation of the so-called uptick rule, abolished amid a chorus of criticism before the worst of the financial crisis, but the exact form of these curbs remains in question, according to Duncan Niederauer, chief executive of NYSE Euronext.

Mr Niederauer on Wednesday met top officials at the Securities and Exchange Commission and discussed, among other matters, the possible reinstatement of the rule or similar measures.

He said the next step was likely to involve equity market centres, working in concert with regulators, coming up with two or three ideas for the best way in which some form of the uptick rule could be reintroduced. This could involve a price test that takes the greater speed of today’s markets into account or stock-specific rules that would be triggered by a certain degree of short interest in particular stocks among other possibilities.

The so-called uptick rule was scrapped by the SEC in July 2007 just as the credit crisis was beginning to take hold and before the worst equity market volatility of the recession of the past 18 months. It allowed short selling only when the last tick in a stock’s price was positive. This rule was implemented after the 1929 market crash to prevent short sellers from driving the price of a stock down in a bear run.

Several critics have blasted the SEC for its 2007 decision and the news that it is considering reinstating the rule now has been met with incredulity in many quarters.

Robert Ellis, senior vice president of the wealth management group at Celent, a Boston-based consulting firm, said: “I don’t know whether to laugh or cry. The 2007 decision by the SEC was one of the worst and most irresponsible in terms of leading to the overall decline that has wiped out trillions of dollars in wealth from Americans’ investment portfolios.”

“Making this change now is a lot like bolting the barn door after the horse has left the barn, the county and possibly the state,” he said, adding that many average investors had lost so much faith in the equity markets that it would be years, if not generations, before they return.