A Great Deal
100/
As our stock price was plummeting in the days leading up the Lehman Brothers bankruptcy, our CEO called everyone into a “town hall” meeting at our midtown headquarters. He complained that the SEC had rejected his suggestion to reinstate the infamous “uptick rule.” This was a trading regulation mandating that short sellers can only sell stock at times when the previous sale was an “uptick”; a sale at a higher price than the one before it.
As our stock waffled back and forth in the $10–20 range, I was feeling not so great about my decision to max out the Employee Stock Purchase Plan while it was trading between $70 and $90. At a 15% discount it had seemed like a great deal.
Let’s just say I was becoming intensely interested in the question of WHY stock prices fall.
The uptick rule had been a Depression-era attempt to prevent short sellers from ganging together to attack a stock at times when there were not many buyers present. Eliminating the uptick rule had been a major coup by the quants just a couple of years before.
It goes back to what I was explaining earlier, that everyone now understood that stock prices could go down. According to the quants, “frictions” like the uptick rule facilitated price bubbles which could mislead investors and eventually pop, creating devastating losses.
They would say things like “When you make it hard to sell stocks, you make it hard to buy stocks.”
In other words, short sellers shouldn’t be demonized. That was the argument the quants had made to the regulators.
To be honest it was a pretty convincing argument. It reminded me of the transfer tax that condo developers had to pay and was therefore passed along to buyers like me. Why did the playing field of capitalism have to be littered with so many silly obstacles; these taxes and regulations?
