More On The Uptick Rule Debate

Watched with some amusement all of the shouting this morning about the plus-tick rule proposals. Several points I believe are true:

1) It provides a counterbalance to behavioral factors that have a tendency to create return asymmetries that weigh upon the long term, overarching objectives of capital formation and liquidity, which are the primary purposes of the capital markets. All else being equal, markets without such rules will be more volatile and less attractive to investors than markets that have them.

2) Any conversation about it in the context of it being a weapon to use against short sellers because short selling is a bad thing in and of itself is specious. Short selling is essential to well-functioning capital markets.

3) Plus-tick rules and naked-short rules are apples and oranges. Naked shorting is far more damaging, and is correctly illegal, at least theoretically. To allow naked shorting is incredibly obtuse, since it allows for an unlimited supply of shares. This is exactly the same thing as saying prices are not allowed to go up.

4) Many day- and spread-traders, quants, and index-basket traders will be inconvenienced in the short run by the reinstatement of the rule. As a group, these include some ome of the cleverest people in the markets. They will adapt and thrive.

5) The rule will help pre-empt some forms of manipulative behavior, which would help side-step the enforcement debate for those forms of behavior affected.