The White House is fielding calls from Wall Street to rein in short sellers as the stock market continues to tumble, sources told The Post.
Specifically, several prominent investors and executives have asked the Trump administration to bring back a legacy securities regulation called the “uptick rule,” according to a White House adviser.
The rule, which got scrapped in 2007 by the Securities and Exchange Commission, bars short sellers from betting against stocks when their prices are falling. To place a so-called short bet that the stock will continue to fall, investors must wait for it to rise.
“There’s a crowd that wants to reinstitute the uptick rule,” the source said. “It’s out there for discussion.”
Nevertheless, while technical experts working with the White House are looking at the move, the source added that the Trump administration currently “has a lot on its plate” and the idea isn’t being given high priority.
As reported by The Post, bigwig investors have been separately pressuring the White House to temporarily shut down the markets, according to sources — an emergency measure that hasn’t been taken since Hurricane Sandy hit in 2012 — but top government officials say the idea isn’t being taken seriously.
The uptick rule was originally adopted by the SEC in 1938 under the securities regulator’s first chairman, Joseph Kennedy, to stop short raids that can lead to panic selling. When the SEC scotched the rule in 2007, it argued that it was hampering liquidity.
Critics have likewise argued that excessive regulations against short selling can expose the markets to dangerous bubbles.
However, in an August 2007 column published in National Review titled “What was the SEC thinking?” Larry Kudlow, who is now director of Trump’s National Economic Council, argued that eliminating the rule led to more “bear raids on stocks”.
In 2010, the SEC approved an amended uptick rule so that shorts need to be bought on an uptick when a stock falls by 10 percent or more compared to the prior day’s close.
Over the past week, it is has not been short sellers that have been dragging down stocks, said Ihor Dusaniwsky, managing partner, head of predictive analytics at S3 Partners.
The purpose of the uptick rule is giving a long-seller a chance to sell their position without competing with a short-seller, according to Dusaniwsky.
“When you look at the total amount of trading, it’s minimal,” he said of short sellers, soon after the Dow fell 12.9 percent on Monday representing its biggest percentage loss since 1987.
“When you see moves like these, these are long-sellers.”
Investors short stocks by borrowing them and then selling them, betting they can buy them back later and replace them at a lower price and pocket the difference.
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