SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

DRAFT
these measures are designed to capture other elements of investor confidence. 9 In
addition, survey results of issuers, CFAs, and investors do not find consistent results on
whether an uptick rule would boost confidence.
As in the Schwab testimony at the May 5 th roundtable, the Schwab letter noted that
investments in Schwab accounts have moved away from riskier assets. This could be
consistent with a loss in investor confidence in the stock market, or it could be a “flight to
quality” often seen when systematic risk rises or investors become more pessimistic
about the economy. It may have been more useful had Schwab sent statistics showing
how drastic the changes in investor behavior have been. Nonetheless, the Schwab
evidence seems inconsistent with the TD Ameritrade data that show that its clients put
more money into the markets (specifically Technology and Financial Services
companies) between Fall of 2008 and Spring of 2009.
Other commenters also provided evidence from surveys (NYSE Euronext, CFA, and TD
Ameritrade). For example, NYSE Euronext’s survey among its issuers suggests that a price
test would boost confidence. In fact, over 95% of NYSE issuers who participated in a recent
survey believed that the market would function better with one of the proposed short sale
price test restrictions. CFA Institute surveyed its members on short selling. The majority
of the respondents agreed that short selling benefits the market by providing price
discovery and market liquidity and also that the repeal of the uptick rule in the U.S.
markets as the main check and balance on short selling contributed to market volatility in
the shares of financial services firms. This evidence is in contrast with the TD
Ameritrade’s survey among its clients, the majority of which don’t believe that an
overhaul of Financial Services Regulation (for example, a tighter short sale regulation),
would be a solution to restore investor confidence. When considering this survey
evidence on investor confidence, the three surveys reflect different viewpoints and come
to different conclusions. Therefore, we do not believe that these surveys provide strong
evidence that investor confidence would improve with an uptick rule.
Other commenters produced evidence on indexes of investor confidence to argue that the
re-instatement of an uptick-type rule is unnecessary (e.g. Ingrid Werner, SIFMA, RBC
Capital Markets Corporation, Coalition of Private Investment Companies, and EWT).
Professor Ingrid Werner showed that short interest was not related to either of two indices
of investor confidence: State Street Confidence Indices and Yale investor confidence
indices., More recent comment letters presented index evidence that market conditions
have appeared to stabilize with concomitant positive impacts on investor confidence,
despite the lack of an uptick-type rule (see SIFMA letter). For example, Coalition of
Private Investment Companies, RBC Capital Markets Corporation, and EWT, LLC show
that the State Street Investor Confidence Index and other indexes of investor confidence
have recently experienced an increase 10 ; and NAAIM cited a few press articles as
9 A contemporaneously prepared RiskFin memo points out that investor confidence is an ambiguous term
that can mean several things. For example, investor confidence often refers to the systematic risk in the
market, which cannot be diversified away, optimism about the economy, and investor protections.
10 The State Street Investor Confidence Index in May 2009 rose to 106.3 from 82 in Fall 2008. The Gallup
Index of Investor Optimism has increased by 73 points from its low in February 2009 through August
2009; The Bloomberg Professional Global Confidence Index set two consecutive record highs in August
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