Various investors have been whipsawed by the market’s sharp downturn, but billionaire investor Leon Cooperman thinks reinstating an old vocation rule could help protect them: The uptick rule.
The uptick rule was a rule from the Securities and The Exchange Commission that prevented short sellers from putting more pressure on a security that was already languishing. The manage was implemented in 1938 but was eliminated in 2007 as electronic trading began to take over Wall Street.
Cooperman prognosticated Sunday night that, by bringing back the old rule, market moves such as the ones seen last week, would be bantam volatile. He added that bringing back the uptick rule would be even more effective at stabilizing the call than lower rates from the Federal Reserve at this point.
“If you ask me: cutting the rates or reinstating the uptick statute? I say reinstate the uptick rule,” Cooperman said during a CNBC special Sunday evening. “Rates are already low adequate.”
Leon Cooperman at Delivering Alpha, September 19, 2019.
Adam Jeffery | CNBC
Essentially, the rule only allowed investors to barring a stock or a security on an uptick, which is defined by a price increase relative to its previous tick. For example, if a stock exchanges at $1 in one tick then rises to $1.02 in the following tick, then an investor can short it. However, if the stock customers at $1 but falls to 99 cents on the next tick, a trader cannot short it at that moment.
Cooperman be conscious ofs so passionate about this issue he sent a letter to the Securities Exchange Commission, he said.
Eliminating the rule “service and abetted a lot of these quantitative trading systems, which basically exaggerate moves up and down,” he said. “In the last hour on Friday, the S&P 500 progressed like 100 points. That’s not related to economics.”
The S&P 500 closed well off its session lows on Friday after a twitch with less than hour left in the session. Still, the broad average was down more than 11% for the week and entered corrigendum territory as global markets were battered by concerns over the coronavirus.
To be sure, some traders believe that forms such as the uptick are archaic and that by undoing them and letting electronic trading flourish, the SEC has allowed Wall Avenue to lower costs for investors and provide more liquidity in trading, even during a crisis.
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