The case for Wall Street's 'short people'
Some Democratic leaders in Congress want to bring back the uptick rule, which limits the practice of short selling on Wall Street. Bob Moon explores the origins of the rule and why some don't like "short people."
Traders work on the floor of the New York Stock Exchange Nov. 5, 2008. (Spencer Platt/Getty Images)
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Steve Chiotakis: If you keep up with Wall Street, you probably know what the "uptick rule" was. I say was because the Securities and Exchange Commission made it go away in 2007. Democratic leaders on Capitol Hill say we need it back, to restrict traders who make money when stocks fall. Here's Marketplace senior business correspondent Bob Moon.
Bob Moon: The return of the uptick rule would please those who wish certain short people would just go away:
Randy Newman: Don't want no short people 'round here.
The "short people," in this case, are short sellers. They borrow other peoples' shares and sell them in hopes the stock price will fall. If they can turn around and buy the stock back cheaper when they return it, they pocket the difference as profit.
Opponents complain stocks can be pushed lower when too many short sellers pile on. There was a rule limiting such trading to only when a stock's value was on the rise -- an uptick. But the 1930's era curb was dropped two years ago, just before the markets tanked.
Enter the defenders of the short people:
Song: Short people are just the same as you and I.
Eric Newman is a portfolio manager at TFS Capital. He insists eliminating the uptick rule wasn't to blame for the market's woes:
Eric Newman: You know, the crash of '87, the bear market of 2002, you know, all of these things happened while the uptick rule was alive and well.
Opponents concede the change isn't the only problem. But Clearbrook Financial's chief investment officer Tom Sowanick says unbridled short selling has added to the crisis of confidence:
Tom Sowanick: We've taken these stocks down to levels that cannot be justified based on fundamentals. We've gone to the other extreme.
Sowanick argues every little bit of restored confidence -- namely a return to the uptick rule -- can only help.
I'm Bob Moon for Marketplace.
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From Macon, GA, 03/11/2009
In 2002 I retired after spending 28 years in the backoffice of a major retail brokerage firm. I had cut my teeth on the short sale uptick rule and the requirement on short sellers and their brokers to "borrow the shares" above an agreed limit of say more than 500 shares when selling short. Last fall when witnessing the precipitous decline in stock price for financial companies like Lehman, Merrill, Wachovia, and others, I was horrified to learn that the uptick rule had been eliminated. It is ironic in the extreme that the very companies which sought the elimination of the rule were among the ones totally done in by its being eliminated.
In my opinion it is inherently criminal and counter productive to allow short sellers to unrestrictedly bid down the shares of companies and in the process destroy not only the companies, but their employees, and their stockholders, if not our economy.
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