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http://www.house.gov/apps/list/press/ny05_ackerman/PR_012709.html

January 27, 2009


Ackerman Urges New SEC Chief to Restore Uptick Rule to Regulate Short Sales of Stocks



Congressman also receives letter supporting reinstatement of the regulation from Christopher Cox, the former SEC Chair who rescinded the rule

(Washington, DC) - U.S. Rep. Gary Ackerman (D-NY), a Senior Member of the House Financial Services Committee, today sent a letter to the new Securities and Exchange Commission (SEC) Chairwoman Mary Schapiro – on her first day in office – that urges her to reinstate the uptick rule, the depression-era regulation that required a stock to increase in price before a short sale could be executed.

“One of the simplest but most important and effective initiatives that the SEC could undertake immediately to combat market volatility is the reinstatement of a so-called uptick rule” Ackerman wrote. “For more than 70 years, the uptick rule curbed short-selling runs until, short-sightedly, the Commission revoked it in 2007. The lack of a price test in our exchanges created an environment that provided short sellers with the ability to both exploit and accelerate the failures of a number of companies, including Bear Stearns and Lehman Brothers, the collapse of which had a devastating effect on confidence in the U.S. financial markets.”

Ackerman also received a letter from former SEC Chairman Christopher Cox dated January 20, 2009 – the day he left the agency – in which Cox said he supports the reinstatement of an uptick rule. Cox sent the correspondence despite the fact that the SEC rescinded and refused restore the regulation during his tenure as Chairman.

“I have been interested in proposing an updated uptick rule” Cox said his letter to Ackerman. “However, as you know, the SEC is a commission of five members. Throughout 2008 there was not a majority interested in reconsidering the 2007 decision to repeal the uptick rule, or in proposing some modernized variant of it. I sincerely hope that the commission, in the year ahead, continues to reassess this issue in light of the extraordinary market events of the last several months, with a view to implementing a modernized version of the uptick rule.”

Last summer, Ackerman repeatedly pressed Cox to restore the uptick rule, both in written correspondence and during Cox’s appearance before the Financial Services Committee.

Earlier this month – during the opening days of the new Congress – Ackerman reintroduced legislation that would reinstate the uptick rule. The measure, which Ackerman first introduced during the last session of Congress (in July 2008), would mandate the SEC to restore the uptick rule within 90 days of the bill’s passage.

“The best solution would be for the SEC to reinstate the uptick rule on its own” said Ackerman. “But if the agency fails to do so, Congress will force them to restore the regulation by passing our legislation.”

In an effort to secure support for the bill, Ackerman has circulated a letter to members of Congress from Charles Schwab – the chairman of the financial services firm that bears his name – which urges enactment of the Congressman’s legislation.

In a short sale, an investor borrows shares of a stock from a broker, sells it to others, and then hopes to buy it back at a lower price before returning it to the lender. The difference – if any – is kept as a profit.

The uptick rule was designed to prevent short sellers from being the only investors to cause a stock price to decline. Under the rule, a short sale could only be entered after a trade that caused the last price to increase.

Attached are copies of Ackerman’s letter to Schapiro and Cox’s letter to Ackerman.

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January 27, 2009

The Honorable Mary Schapiro
Chairman
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

Dear Chairman Schapiro:

Congratulations on being sworn in as the 29th Chairman of the Securities and Exchange Commission (SEC). Your tenure begins amidst a crisis in our markets and exchanges and I, along with my colleagues, look forward to working with you to restore confidence and stability in our financial system.

One of the simplest but most important and effective initiatives that the SEC could undertake immediately to combat market volatility is the reinstatement of a so-called “uptick rule.” For more than 70 years, the "uptick rule" curbed short-selling runs until, short-sightedly, the Commission revoked it in 2007. The lack of a price test in our exchanges created an environment that provided short sellers with the ability to both exploit and accelerate the failures of a number of companies, including Bear Stearns and Lehman Brothers, the collapse of which had a devastating effect on confidence in the U.S. financial markets.

As you may know, I have been the leading advocate in Congress of the reinstitution of the uptick rule. I sponsored H.R. 6517, a bill that would have reinstated the price test, in the 110th Congress, and I recently reintroduced the legislation as H.R. 302 in the 111th Congress. I repeatedly pressed your predecessor, both during committee hearings and in private conversations, on the merits of reinstituting the uptick rule. Unfortunately, and to the detriment of our financial markets and exchanges, the SEC failed to act under the Bush administration.

While the Commission did not reinstate an uptick rule under the chairmanship of former Chairman Cox, he did express unequivocal support for reinstating a price test in our exchanges on his very last day in office. Of course, that was too late. While today is only your first day as Chairman of the SEC, I strongly urge you to make the reinstatement an uptick rule your first priority; it is that important.

I have attached former Chairman Cox’s letter of support, along with internal memos and SEC studies that he included with his letter, which provide unambiguous evidence that reintroducing a price test could drastically reduce market volatility and protect vulnerable stocks from being victimized by short-selling runs.

Members of Congress, financial industry executives such as Charles Schwab and NYSE Euronext Chief Executive Duncan Niederauer, and former SEC Chairman Christopher Cox all support the reinstatement of a price test to curb volatility in our exchanges. Although you have only just been sworn in as Chairman, I urge you to support the immediate reinstatement of the uptick rule, or some variation of the uptick rule, and to push for consideration of such measures by the Commission as soon as possible.

Sincerely,


GARY L. ACKERMAN
Member of Congress

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Read former SEC Chairman Cox's letter to Congressman Ackerman here. http://www.house.gov/apps/list/press/ny05_ackerman/chairman_cox_uptick_letter.pdf


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