Uptick Tantrum
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For better or worse, the uptick rule had been eliminated, and now hedge funds, many of which had been valued clients of ours until very recently, were dog-piling into short positions against our stock. If the stock price got low enough, the bank could be forced to seek additional capital or to go into bankruptcy. He explained all of this and said that the SEC had fallen under the spell of “academics” and wouldn’t listen to him.
More dark sorcery in other words.
To be honest, it sounded desperate to me. He seemed legitimately scared, and that made me think that there was a real reason to worry. Where was this impassioned defense of the uptick rule during the debate about eliminating it years earlier?
Of course, critics would argue that no one was victimizing the firm. It was just “The Market” adjusting its estimate of our value to more appropriate (lower) levels. Desperate or not, I wasn’t sure that he was wrong. After all, the Fortress of Quant was crumbling before our very eyes. Maybe the uptick rule was just one more thing the quants had been wrong about.
Preventing this very thing from happening was the stated reason for the uptick rule in the first place. What I learned in that meeting was that there were two points of view, and I couldn’t tell which one was correct. The world must be a better place with the uptick rule or without it.
It was the sort of question that a person wanting to discover the truth about capitalism might need to reach a position on.
But I still didn’t know enough to take one.
