Mark McHugh

The ‘Uptick Rule’ (A.K.A The Dangers of Dog Piles)

Author’s notes: This article (first published Feb. 10, 2008 at Seekingalpha.com) was the first work of mine  that received any attention to speak of.  It still makes me smile, because it was the first time I got the humor the way I wanted it and still made a point.  To my knowledge, this was also one of the first articles to suggest that this market decline was going to be really really bad (like 1929).  It was considered preposterous at the time.

I still point to the uptick rule’s removal as a criminal act, that has yet to be recognized.  Considering  Mary Schapiro was Chairman of the NASD when the rule was removed, don’t look for her to admit she was asleep at the switch (or worse) any time  soon.


On July 6, 2007, our pals at the SEC stopped sitting on their hands long enough to repeal a rule that was introduced in the Securities Exchange Act of 1934. The “uptick” rule or Rule 10a-1 required a short sale could only take place at a price higher than the previous trade. Basically, when a stock was getting hammered by people who actually owned the stock, you couldn’t short it until someone bought it (thus creating an uptick).

From Urbandictionary.com:

Dog Pile

A group of people jumping on one person and creating a tower of people while crushing the people on bottom.

If some one falls over everyone nearby jumps on him/her thus creating a dog pile.

Boys will be boys. Good, clean fun, as long as you’re not the guy on the bottom. Grown-ups tend to flip out when they see one. “Someone’s gonna get killed,” etc., etc. Sure dog piles are dangerous, but they provide excitement when kids are bored, and very rarely are they fatal.

The uptick was created to protect investors. It stopped traders from profiting by shorting stocks that they had no interest in, driving prices even lower for the remaining shareholders (dog piling). It always seemed like a really, really good rule to me. But it’s gone now. Dog piling has been sanctioned by the Keystone Cops (some restrictions may apply). They ran a “pilot” program for a little while it seemed o.k, so they decided to roll with it. Yeah, and mortgage backed securities worked in theory….

Proof I’m not just making this up (large pdf warning).

Anyway, the way I understand it, you can’t just pick a stock and crush it for no good reason, but if the stocks “trips” (misses earnings, guides lower) dog piling is allowed. What a godsend this must be for the trading desk at Goldman!

Fun fact: United States Treasury Secretary Hank Paulson was CEO of Goldman Sachs, and one of only two people in the present administration authorized to comment on the Dollar!

You can dog pile, too!

Check out the Earnings calendar to find out exactly when a small cap stock in a weak sector is about to report earnings (small caps crush faster). Short the stock just before earnings are announced (just as long as there is no way anyone could construe that you might have had inside information). Close your position when the volume drops off. Cha-ching.

Dog piling for Dummies

Maybe you don’t want to sit at your computer all day, or margin stuff just isn’t for you. Consider the Proshares Ultrashort Russell 2000 ETF (TWM). This ETF is up over 15% YTD is loaded with potential victims of dog piling. The Proshares Ultrashort QQQ (QID) is up about 35% YTD.

Side Effects

Side effects may include nausea, volatility, rapid market decline and total economic collapse (1929). Only your conscience can determine if dog piling is right for you.

Who can you thank?

For further information, contact: James A. Brigagliano, Associate Director, Josephine J. Tao, Assistant Director, Lillian Hagen, Special Counsel, Victoria L. Crane, Special Counsel, Office of Trading Practices and Processing, Division of Market Regulation, at (202) 551-5720, at the Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-6628

Fun Fact: China leads the U.S. 1-0 in executing corrupt government officials in the 21st century!

Whether or not you agree with this rule change, you need to be aware of it, because I think the kids are getting bored………

  1. [...] Anniversary to me!  A year ago today I published a piece about the removal of the uptick rule. here What seemed alarmist then, doesn’t look so crazy anymore. ▶ Comment /* 0) { [...]

  2. [...] here is one of the best articles i’ve seen on the Uptick Rule.  -From Across the [...]

  3. [...] here is one of the best articles i’ve seen on the Uptick Rule.  -From Across the [...]

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