Uptick rule cancelled in 2012 This means we can now short a stock anytime we want.
That’s great news for short sellers, but for companies trying to raise money at higher prices to hire more staff or move their projects forward, this rule change can cripple them – especially under the liquidity constraints of the Canadian market.
It doesn’t take a lot of money to control a stock via short selling on the TSX Venture.
As a matter of fact, institutions often hammer stocks via short selling and back up their shorts with warrants they obtained in a previous financing. They often force the price of a stock down to finance the same companies they’re shorting to get a better financing price, or to force a company into a financing arrangement.”
The removal of the uptick rule has created a breeding ground for short funds to make a lot of money betting against companies – especially companies that trade on the TSX Venture.
When you consider that companies that trade on the TSX Venture are likely companies that are speculative and often negative cash-flow businesses, short selling can immediately hurt a company’s ability to finance.
Furthermore, short funds can use computer trading to add additional pressure on stocks to the downside by making it look like there is a lot of stock for sale. In other words, stock manipulation.
And yes, stock manipulation is illegal.