If one is watching the "debate" through CNBC, it's amazing how it misses the obvious and confuses the issue by interchanging a discussion about shorting in general and about manipulative, abusive and naked shorting in specific.
The commentators do the quick sound bite and generally agree that the "uptick" rule should not be brought back. Why? Because they say it did not cause the massive market dislocation. The economy tanked.
The obvious that "we traders" see is that there is massive manipulation in our markets, on the long side, the short side, in settling (or not settling) trades, in access to trading information, in the lack of state of the art auction systems to control extreme volatility in prices, in the failures of regulation to prevent manipulative trading, in the provision of derivative securities that create the effect of "tail wags dog" causing calamitous volatility in the equity markets.
They forget also that the foundation of all regulation is the equity market. Equity capital formation is the basis upon which everything else must lay. Protect the public investors so that they can provide capital for business. This is the way it is supposed to be.
Instead, we have people talking in circles largely to protect the moneyed interests who want to grab commissions, kickbacks, "money for nothing", trades. And we are surprised by Ponzi Madoff???? Are we surprised that he was a MM? (oh yeah, everyone "says" his MM business was legit - roflmao).
So common sense it is and this is all easy "should be" stuff:
1. Access to information. Provide efficient and effective registation, regulation and daily disclosure of positions over 5% (long and short) for pools, funds or whatever else they are called over a threshold amount (with rules of attribution for those that trade in common or in assocation.) If funds provide promotion for their securities or their short positions, provide for reasonable disclosure and disclaimer rules that mirror what is required for professional promotions.
2. Access to information - level 2's - quotations that are accurate and show all markets, and are available to all, that show volumes, that show accurate short positions, that show show trades that have not settled.
3. No trading ahead of customer. Honor the best prices.
4. No shorting without absolute right to borrow in advance.
5. Fails to deliver that are a pattern and this should be easy to define and enforce, will be met with buyins as well as suspension from trading for the firm for increasing periods.
6. Strictly limit exceptions such as option MM and the use of derivatives that skirt the rules relative to settlement of trades.
7. Eliminate all double short, double long (or greater) leverage ETF's or other entities that skirt the spirit of margin limitations. Apply this to all markets, including attempts to provide artificial equity moves on commodity or other exchanges. Coordination with other nations will be necessary but the time has come and the consensus seems to be there.
8. Uptick rules and circuit breakers - This is where the debate is now. Strangely enough, I think these are the least important. I prefer information availability to artificial protections. A 5 cent rule is probably a good compromise with circuit breakers only on "collapse" days. |
