Restore the Uptick Rule to Prevent Market Manipulation

by Kevin D. Freeman on June 26, 2020

What would happen if the market were to crash just before the November election? Based on history, the answer is clear. President Trump would lose in a landslide. Given the numerous hits the Trump team has taken thus far, including the fake Russia conspiracy, impeachment hearings based on trumped up Ukraine claims, a global pandemic from China that devastated the economy, the egotistical efforts of former advisors to sell “tell all” books, a truly hostile media, and communist-supported social unrest, a market crash just might be the final blow.

Don’t think any of this strange or uncoordinated. Even before Day One of this Administration, there has been a plot to remove the duly elected President. Now, as the election approaches, all stops have been pulled so as to demoralize and demonize the opposition and guarantee the outcome. Given the nature of the effort to date, the hopeful victors, no doubt, have plans to fundamentally change this nation. They are already tearning down statues in preparation, even as we are warned by former victims of communism, fearful that they are seeing it all happen once again.

There is just one glimmer of hope for the disheartened Trump supporters. The economy was strong, as represented by the stock market, at least until the mandated quarantine. And, the market appears to be rebounding! That is a point of good news.

Unfortunately, markets rise and fall. The quarantine drop in March was too early to guarantee that the election would swing the right direction. Ideally, if you want to take the White House, you target a collapse between August and November. George Soros explained to CNBC just how important the timing is.

“The stock market, already celebrating Trump’s military success, is breaking out to reach new heights,” he said. “But an overheated economy can’t be kept boiling for too long. If all this had happened closer to the elections, it would have assured his reelection.”

“His problem is that the elections are still 10 months away, and in a revolutionary situation, that is a lifetime,” Soros said.

Read those words carefully. When this was published, no one imagined the economic chaos we would go through. And then look at the key phrase: “…and in a revolutionary situation….” Wow! Let’s connect some dots.

  1. George Soros knows a thing or two about stock market crashes. He was, after all, the man who “broke the Bank of England,” profiting to the turn of $1 billion. He also was among the few to understand that the 2008 crash was the result of “bear raids,” intentional efforts to cause the market to crash. And, he profited by another $1 billion in 2008-09.
  2. George Soros knows a thing or two about riots and unrest.
  3. And George Soros would like to see America fundamentally changed and sees it essential to remove Trump to protect the world.

But Soros may just be a gleeful observer. There are others who would love to see the market and economy collapse to defeat Trump. Worse yet, there are those who have the motive, means, and opportunity to make it happen. We’ve warned about this before, including in December 2018:

Market Terminator at Work?

Here is what we said

Up to 80% of all trading on the stock market on volatile days is generated by Artificial Intelligence. When the market is rising regularly, few take much notice. But when trading becomes chaotic, as it has done recently, people start to become concerned.

The concern is that China knows how to weaponize AI programs. They can be hacked or misled. The Syrian Electronic Army once hacked the AP Twitter feed and caused a very brief market crash. Chinese hackers are far more sophisticated.

We have previously noted a time when China accused us of manipulating their stock market. We have noted that China views causing a market crash to be a weapon of economic warfare. Now, we are experiencing an AI-driven market crash at a time of clear economic war underway. Can we rule out the possibility that China is perpetrating a crash to embarrass the President (who has often pointed to market gains as proof of his success)?

But as George Soros noted, timing is everything.

The Problem: High Frequency Trading (HFT) includes buying, selling, and selling short. With short selling, due to the timing and nature of such trading, it is possible to literally crash a market as experienced in 2008 and the 2010 flash crash. Allowing HFT programs to sell short also hurts liquidity during a crisis. It serves no useful market function. Further, as demonstrated in the 2013 Twitter-feed hack, it is possible to cause a market crash through the manipulation of news to trigger an algorithmic response. Finally, the algorithms can be directly hacked and altered to trigger a crash without discernible fingerprints. The blame will be placed on market forces.

Most academics and professionals believe that the market is by nature self-correcting. Over time, natural market forces should sort out anomalies caused by manipulation. Unfortunately, the intricacy of the timing, coupled with altered public perception, creates an immediate impact with far-reaching consequences that cannot be repaired quickly via market self-correction. An election is one such instance.

There is clear evidence that the 2008 market collapse changed the election as John McCain was actually leading in the polls on September 11, 2008. That day, Lehman Brothers began to collapse (which George Soros said was the subject of a targeted bear raid) taking the entire market down with it. The SEC was forced to ban short selling in hundreds of companies to stem the tide, although the response was too late to prevent the damage. My Pentagon-sponsored study documented foreign interference potential in the 2008 election via the stock market. Multiple studies have demonstrated that the stock market’s performance late in the election cycle is highly correlated with election outcomes. The Chinese Communist Party and others have the motive, means, opportunity, and contacts to crash the market and thus alter the 2020 election

What Can be Done Now?

In 1937, the newly formed Securities and Exchange Commission (SEC) under the direction of  Joe Kennedy instituted the first Uptick Rule. The Uptick Rule requires short sales to be conducted at a higher price than the previous trade. It remained in place until 2007, when the SEC ran a flawed 6-month study suggesting the rule had little impact. There are academic studies disputing the (flawed) findings. Nevertheless, the rule was removed in 2007, just prior to the worst market decline since 1937. The traditional uptick rule’s removal allowed for High-Frequency Trading to take control of markets. The SEC adopted a “new uptick rule” but it is not nearly as effective. Many on Wall Street (who profit from HFT) will vehemently oppose putting back the old rule. But Jim Cramer has supported it, and billionaire hedge fund manager Leon Cooperman actively promotes its return. Charles Schwab also recommended its return. Putting it in place would certainly throttle destabilization plans.

Recommended Action:  POTUS should direct the SEC to immediately adopt a measure allowing for the reinstitution of the traditional uptick rule. This could prevent malicious manipulation or control of High Frequency Trading designed to cause a market crash. The SEC should also require than any share sold short must first be borrowed. No naked shorting allowed.


Now I know that there are plenty of people who will argue with the proposition that China would seek to interfere in our election. But since all of America seemed ready to believe the false notion that Russia colluded to elect Trump; doesn’t this seem the more likely scenario? After all, the Chinese Communist Party has broken their word on Hong Kong, unleashed a pandemic, instituted a one- (now two-) child policy resulting in massive forced baby killings, harvested and sold the organs of their own people, stolen intellectual property, hacked our military, government, and business community, infiltrated American universities with spies, infiltrated Hollywood, co-opted media outlets, and that’s just the beginning. Many see Chinese fingerprints behind Antifa and Black Lives Matter as well. According to their own doctrine of Unrestricted Warfare, causing “a single, man-made stock market crash,” is a key weapon. So in light of that, does it remain such an impossibility?

Consider this from Unrestricted Warfare:

“However, by using the combination method, a completely different scenario and game can occur: if the attacking side secretly (or quietly) musters large amounts of capital without the enemy nation being aware of this at all and launches a sneak attack against its financial markets, then after causing a financial crisis, buries a computer virus and hacker detachment in the opponent’s computer system in advance, while at the same time carrying out a network attack against the enemy so that the civilian electricity network, traffic dispatching network, financial transaction network, telephone communications network, and mass media network are completely paralyzed, this will cause the enemy nation to fall into social panic, street riots, and a political crisis.”

Look at each of the components they mention. Financial crisis, hacking, network attack (including EMP). Social panic. Street riots. Political crisis. And they call it the “combination method.” Every one of those is in play at the moment, including “launch a sneak attack against its financial markets.”

There can be no question as to whether or not we are vulnerable. Read this from the Economist and tell me if it’s ever been addressed:

The war on terabytes

Policymakers worry about attacks on America’s financial system

December 31, 2011

THE financial industry has done such a good job of bringing itself to its knees over the past four years that it is easy to overlook the threats it faces from outside. High among them is electronic attack. In 2010 Symantec, a cybersecurity firm, estimated that three-quarters of all “phishing” attacks, in which people are deceived into surrendering private details such as account numbers, are aimed at the finance sector. Bob Greifeld, the boss of NASDAQ, has described his bourse as being under “literally constant attack”.

Many of these assaults are carried out by hackers bent on mischief. Some are the work of organised criminal groups in pursuit of loot. But plenty of people fret that some attackers are aiming to cause more serious damage.

Leon Panetta, America’s defence secretary, has suggested that a cyberattack on financial markets, the power grid and government systems could be “the next Pearl Harbour.” . . .

The Flash Crash was written off as being caused by a single individual even though it caused billions in damages. If that’s true, can you imagine what a nation-state like China could accomplish?

That’s why we strongly urge the reinstatement of the traditional Uptick Rule. It would throw a wrench into any nefarious plans. Trading Algorithms would not be allowed to sell short unless the previous trade were higher, thus eliminating non-stop selling. Of course, this would slow down trading which is really what’s needed. Some would argue that the HFT programs could be re-written to make sure there was a buy order between every short sale. While that is theoretically possible, it’s not certain that it could be actuated effectively. And, if the buy orders were simply a manipulation to allow further shorting, they could be deemed manipulation and thus illegal. Any violators would be barred from trading.

In addition to the uptick rule, the SEC should enforce all restrictions against naked short selling. That’s another subject for another day but here are some links to where you can learn more:

Proof of Market Manipulation

Yes, Wall Street Deserves Some Blame

Policymakers worry about attacks on America’s financial system

Yes, Naked Short Selling IS a Real Problem

By the way, these are recommendations I made in my report to the Pentagon in 2009 and in my 2012 NY Times bestseller, Secret Weapon; How Economic Terrorism Took Down the US Stock Market and Why it Can Happen Again. It’s time they were implemented. Before it is too late!


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