Short Notes: Uptick Rule.

I believe that one of the problems with this market has been the absence of the "uptick rule". This rule refers to trading restrictions that will not permit short selling of a security except on a price uptick. A short sale must either be at a price above the last traded price of the security, or at the last traded price if that price was higher than the price in the previous trade.

The uptick rule was eliminated in July of 2007. One year later the world went into free fall. Since it's elimination we have seen last year's "flash crash" and the current carnage which I believe owes part of the rapidity and violence of its decline to the fact that short sellers can lean on stocks and futures with virtual impunity while natural buyers step aware due to fear of what the shorts can do.

Now there were studies done over the years saying that the uptick rule didn't function as intended and perhaps it doesn't need to be applied in normal markets where liquidity is ample. But in situations such as now, I think it would be interesting to bring it back as part of a "circuit breaker" on free falling markets.