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The case for Wall Street’s ‘short people’

Bob Moon Mar 11, 2009

The case for Wall Street’s ‘short people’

Bob Moon Mar 11, 2009


Steve Chiotakis: If you keep up with Wall Street, you probably know what the “uptick rule” was. I say was because the Securities and Exchange Commission made it go away in 2007. Democratic leaders on Capitol Hill say we need it back, to restrict traders who make money when stocks fall. Here’s Marketplace senior business correspondent Bob Moon.

Bob Moon: The return of the uptick rule would please those who wish certain short people would just go away:

Randy Newman: Don’t want no short people ’round here.

The “short people,” in this case, are short sellers. They borrow other peoples’ shares and sell them in hopes the stock price will fall. If they can turn around and buy the stock back cheaper when they return it, they pocket the difference as profit.

Opponents complain stocks can be pushed lower when too many short sellers pile on. There was a rule limiting such trading to only when a stock’s value was on the rise — an uptick. But the 1930’s era curb was dropped two years ago, just before the markets tanked.

Enter the defenders of the short people:

Song: Short people are just the same as you and I.

Eric Newman is a portfolio manager at TFS Capital. He insists eliminating the uptick rule wasn’t to blame for the market’s woes:

Eric Newman: You know, the crash of ’87, the bear market of 2002, you know, all of these things happened while the uptick rule was alive and well.

Opponents concede the change isn’t the only problem. But Clearbrook Financial’s chief investment officer Tom Sowanick says unbridled short selling has added to the crisis of confidence:

Tom Sowanick: We’ve taken these stocks down to levels that cannot be justified based on fundamentals. We’ve gone to the other extreme.

Sowanick argues every little bit of restored confidence — namely a return to the uptick rule — can only help.

I’m Bob Moon for Marketplace.

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