Thursday, December 11, 2008

screw charles schwab Uptick Rule is BS

http://finance.yahoo.com/tech-ticker/article/144205/Resurrect-the-Uptick-Rule-Beware-of-Consequences?tickers=schw,^dji,^gspc,^ixic

1 comment:

Unknown said...

Charles Schwab has one of the richest data sets of stock transactions in the world. He is CEO of a firm that processes about half a million stock trades EVERY DAY. And yet, when he writes an op-ed piece attacking short sellers, he is unable to come up with a single piece of evidence that short sellers are impacting the market. The extent of his research seems to be putting the word "manipulative" in front of "short sellers."

So let's look at some data. Between July 15th and November 14th, short shares outstanding fell by more than 5 BILLION shares on the NYSE, and by more than 3.5 billion on the Nasdaq. But during that time, the S&P 500 fell 27.5%, and volatility (as measured by the VIX) more than doubled, increasing by 132%. How exactly did short sellers BUYING back 8.5 billion shares of stock cause the market to collapse and volatility to rise? The answer is that they didn't.

I am honestly not sure why I have to explain this to Mr. Schwab, but here goes. The uptick rule only affects stocks. But we have
seen dramatic increases in volatility of oil prices, bonds, a
nd just about every other asset class. How can anyone believe that the higher volatility of stocks was caused by the repeal
of the uptick rule, when volatility is higher everywhere?

Schwab also notes that some stocks fall by 20% or 30% in a single
day. I would like to let him know that they also rise by that aamount some days too, but I guess that's a separate point. Because stocks fall, short sellers are to blame? Between September 19th and September 26th, Washington Mutual fell by 96%. Is it those manipulative short sellers again? Well, no-- short selling was banned in hundreds of financial companies during this time, including Washington Mutual.

Finally, Schwab claims that the uptick rule has “worked for
nearly 70 years”, ostensibly because the market has generally
gone up during that period. What an odd statement. Did the
uptick rule “fail” in October 1987? What about when the S&P
fell by more than 40% between 2000 and 2002?

Let's be clear: Short sellers are not driving price. In fact, the data shows that short sellers serve to regulate price-- they are part of the few who are buying when stocks go down, and selling when stocks are going up.

Stocks go down because they are overvalued. There was too much
leverage, and too many companies didn’t bother preparing for anything besides the best of times. Let's stop blaming the short sellers already.

Eric Newman - TFS Capital, LLC