Omega Advisors founder Leon Cooperman blamed officials at the Securities and Exchange Commission for failing to address the impact computerized trading has had on the broader market and how it exacerbates volatility during market swings.
“I think your next guest ought to be somebody from the SEC to explain why they have sat back calmly, quietly, without saying anything and allowing these algorithmic, trend-following models to wreak havoc with what has, up to now, been the best capital market in the world,” Cooperman told CNBC’s Scott Wapner.
“In the mid-1930s, they instituted the Uptick Rule to deal with the abuses of 1929. It worked effectively for 70-odd years, they took it out in 2008 for some unexplainable reason,” he added. “And they created a Wild, Wild West environment in the stock market.”
The billionaire’s comments came after the Dow Jones Industrial Average suffered an almost 800-point drop on Tuesday and was down nearly 700 points on Thursday. The major stock indexes have plummeted in recent sessions as fears over a slowdown in economic growth and the U.S.-China trade war grip market participants. Tuesday was the index’s worst performance since Oct. 10.
“Bear markets don’t materialize out of immaculate conception. They come about from certain fundamental reasons the stock market is seeing,” Cooperman said. “The no. 1 cause of a bear market is the stock market smelling an oncoming recession. I won’t cite all the economic data, but there’s just no signs of recession.”
The Uptick Rule was a law by the SEC that mandated that every short sale be submitted at a higher price than the previous trade, ensuring the short seller that their order would be filled on an uptick. The rule, a product of the 1930s, prevented short sellers from adding to the downward momentum of an asset already experiencing sharp declines.
The rule was removed in 2007, though an abbreviated version was been reintroduced in 2010.
“Get somebody from the SEC to explain why they eliminated the Uptick Rule and what do they think about these quantitative trading systems that have created tremendously of volatility in the market, scared the public, [and] effectively raised the cost of capital to business,” Cooperman said. “Why have they sat back and allowed this to go on? Maybe they have a good explanation.”