Obscure Rule Change Blamed for Wild Market

'Downtick' regulation helped check stock free falls

By Peter Fearon, Newser Staff

Posted Aug 14, 2007 1:22 AM CDT

(Newser) – A change in an arcane rule governing stock trading is being blamed for some of the recent volatility in the stock market, the Wall Street Journal reports. For more than 75 years, the "downtick rule" prevented traders from shorting a stock as the price fell. Its repeal last month coincided with some wild swings in the market.

Short sellers borrow shares and sell them, betting the price will fall and that they'll be able to repurchase them for less for return to the lender. The downtick rule was established to check cascading short sales that could destroy a stock. "They quietly changed the ground rules," said one trader. "There's no question it's been an aphrodisiac for volatility."

Specialist James Maher, left, directs trading in shares of Countrywide Financial on the floor of the New York Stock Exchange, Friday, Aug. 10, 2007. The Calabasas, Calif.-based lender in a filing with... (Associated Press)

Activity winds down just after the closing bell on the floor of the New York Stock Exchange, in this July 27 , 2007 file photo, in New York. NYSE Euronext, the world's largest stock exchange, said Thursday,... (Associated Press)

Traders crowd the floor of the New York Stock Exchange near the close of trading, Thursday afternoon, Aug. 9, 2007. Wall Street plunged again Thursday after a French bank said it was freezing three funds... (Associated Press)

« Prev« Prev | Next »Next » Slideshow

To report an error on this story, notify our editors.

More Newser Stories

Wall Street's New Rules Worry Traders

Temporary ban on short-selling causes fundamental shifts

(NEWSER) - Stocks roared back to life yesterday on the government’s actions to stabilize the markets, but many traders expressed uncertainty about the new rules of the game, the New York Times reports. The temporary ban on short selling and the new requirement to disclose such trades have wreaked havoc with core mechanics of the market, causing computer glitches and erroneous trading prices in some instances. More»

SEC Will Limit Short Sales of Finance Stocks

Agency worried negative bets by traders are hurting the market

(NEWSER) - The SEC will step in to police naked short-selling of 17 financial firms, as well as Fannie Mae and Freddie Mac, the Wall Street Journal reports. The agency said it plans to impose short-term, emergency rules on Monday that curtail traders betting on the stocks to drop, worried the short selling is worsening the crisis in the financial sector. More»

Bernanke Stands Pat, Sends Stocks Tumbling

Dow tumbles below 11K

(NEWSER) - Ben Bernanke didn’t give any sign that the Fed was about to take fresh action to prop up the economy in his speech at Jackson Hole today, sending stocks tumbling. Bernanke said the Fed “is prepared to employ its tools as appropriate to promote a stronger economic recovery,” but added that “the growth fundamentals of the United States do not appear to have been permanently altered,” according to the Wall Street Journal . More»

European Countries Ban Short Selling

First Western ban on practice since Lehman fall

(NEWSER) - European markets are up today following the decision by four countries to ban short-selling of some stocks. After stumbling this morning, London’s FTSE 100, Frankfurt’s Dax, and Paris' Cac rose between 1.5% and 2.5%, the BBC reports. The last major Western short-selling ban came in the US and UK after the fall of Lehman Brothers. There are no plans to expand the current temporary bans beyond France, Italy, Spain, and Belgium, said a top European regulator—but he wouldn’t rule it out. More»

Stock Rally Stutters

Falling futures mean we're not out of the woods

(NEWSER) - Global stocks were up early today following an uptick on Wall Street in the wake of the Fed's pledge to keep interest rates low. But it wasn't clear if the rebound would hold. Asia rates climbed and modest hikes marked Britain's FTSE 100 index (up .2%) and Germany's DAX (up .9%), though the CAC-40 in Paris was down .3%, and the the Euro Stoxx 50 index of euro zone blue chips opened higher but was down .4% by mid-morning. More»

NEWS FROM OUR PARTNERS

What is Newser?

Face it: there's too much news. At Newser, we choose the most thought-provoking and entertaining stories from hundreds of US and international sources and reduce them to a headline, picture, and two paragraphs. And we do it 24/7—you can come back morning, noon, night (and in between) for something new that matters. Read less, know more.

Learn more »

Partnering with: Slate

View Newser on the mobile website

Obscure Rule Change Blamed for Wild Market

'Downtick' regulation helped check stock free falls

OTHER STORIES ON OUR RADAR

Changing the Rules

stock market • Federal Reserve • SEC • downtick rule • short selling

MOST POPULAR STORIES

[ By Views ]

[ By Comments ]

More Newser Stories

Wall Street's New Rules Worry Traders

Temporary ban on short-selling causes fundamental shifts

SEC Will Limit Short Sales of Finance Stocks

Agency worried negative bets by traders are hurting the market

Bernanke Stands Pat, Sends Stocks Tumbling

Dow tumbles below 11K

European Countries Ban Short Selling

First Western ban on practice since Lehman fall

Stock Rally Stutters

Falling futures mean we're not out of the woods

About Us

Site

Newser By Users

Community

Site Maps

Tools

More News

What is Newser?

Obscure Rule Change Blamed for Wild Market

'Downtick' regulation helped check stock free falls

Bookmark & Share

OTHER STORIES ON OUR RADAR

Changing the Rules

stock market • Federal Reserve • SEC • downtick rule • short selling

MOST POPULAR STORIES

[ By Views ]

[ By Comments ]

More Newser Stories

Wall Street's New Rules Worry Traders

Temporary ban on short-selling causes fundamental shifts

SEC Will Limit Short Sales of Finance Stocks

Agency worried negative bets by traders are hurting the market

Bernanke Stands Pat, Sends Stocks Tumbling

Dow tumbles below 11K

European Countries Ban Short Selling

First Western ban on practice since Lehman fall

Stock Rally Stutters

Falling futures mean we're not out of the woods

About Us

Site

Newser By Users

Community

Site Maps

Tools

More News

What is Newser?