New SEC Chairwoman Mary Schapiro has her work cut out for her. She’s charged with undoing the damage done by her predecessor Christopher Cox, which is no small task. Cox presided over the elimination of market protections created after the Great Depression, blessed financial instruments used to damage entire sectors and missed the biggest Ponzi scheme in history. It may seem like Schapiro can’t help but do better, but there’s still enormous pressure on her to restore confidence in the markets.
But, of course, Cramer is willing to help out. So he laid out a four-point priority list for Schapiro. They’re actions that need to be taken, he said, if ordinary investors are ever again to trust Wall Street.
Reinstate the uptick rule, which required a trader to wait for a stock’s price to “tick up” before he could sell it short. By forcing traders to wait, a particular company was protected from relentless sell-offs that could drive the share price to zero. Bear raiders have been taking advantage of the rule’s absence – Cox repealed it in 2005 – to hammer down whole groups of stocks.
Crack down on naked short selling, the practice of selling short a stock without first borrowing it. The lack of an uptick rule combined with blatant naked short selling has allowed traders to drive whole companies, such as Lehman Brothers, right out of existence.
Eliminate ultra-short exchange-traded funds. Not only do these ETFs allow traders to sidestep margins rules – by turning a $1 investment into $2 – but they’re also another way for bear raiders to attack an entire sector of stocks. It’s market manipulation, pure and simple, Cramer said. Besides, these funds have been costing their investors a lot of money. Here’s why.
And lastly, enforcement needs to be ramped up. We can’t afford to have another Bernie Madoff scandal.
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