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Indeed. In fact the banks themselves are bypassing the short ban if this report is true. LOL
http://business.theage.com.au/business/banks-rorting-shorting-ban-20090302-8lov.html
ASIC extends ban on covered short selling
- Thread starter captain black
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Indeed. In fact the banks themselves are bypassing the short ban if this report is true. LOL
http://business.theage.com.au/business/banks-rorting-shorting-ban-20090302-8lov.html
Macquarie remains under a shorting and rumourtrage attack,” he says. “Macquarie is being attacked by shorters of the satellites, but it is blatantly obvious that shorters are also still shorting the head shares via some sort of derivate arrangement with another bank.
This is a quote in the article by Michal Pascoe
If something is blatantly obvious you would be able to describe it better than to say some sort of derivative arrangement Just another good reason not to read the news or believe the rubbish they trot out
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ASIC has again extended the ban until 31st May
http://www.businessspectator.com.au/bs.nsf/Article/ASIC-extends-ban-on-short-selling-of-financials-$pd20090305-PTTGV?OpenDocument
http://www.businessspectator.com.au/bs.nsf/Article/ASIC-extends-ban-on-short-selling-of-financials-$pd20090305-PTTGV?OpenDocument
To most banks and hedge funds this option is useless anyway. Who so? Well market makers have an exception to the short selling ban.
In other words products such as put options and such can still be created and are on the market.
A bank/fund would have no problem selling some call options and buying put options to have a synthetic short. The market makers may do it within themselves and claim it as market making activities.
I think the ban really affects retail investors mostly - who don't have the capital or necessarily the understanding of derivatives and want to work directly with the shares.
In other words products such as put options and such can still be created and are on the market.
A bank/fund would have no problem selling some call options and buying put options to have a synthetic short. The market makers may do it within themselves and claim it as market making activities.
I think the ban really affects retail investors mostly - who don't have the capital or necessarily the understanding of derivatives and want to work directly with the shares.
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DMA CFD's are affected. Market Makers like CMC were still allowing short selling on their CFD's during the ban, I assume they still will.
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I read this yesterday from Money Management
http://www.moneymanagement.com.au/articles/Gov-t-warns-on-short-selling-mimics_z469739.htm
Could this affect CFDs? The report was very vague about what products Nick Sherry was actually talking about.
http://www.moneymanagement.com.au/articles/Gov-t-warns-on-short-selling-mimics_z469739.htm
Could this affect CFDs? The report was very vague about what products Nick Sherry was actually talking about.
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Nizar, what captain black said, but you can short any of the ASX50 including financials by using ASX CFDs. They are not as liquid as other CFDs but you can get around that reasonably well by hitting the market makers in smaller lots.
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This is riduculous.
Instead of shorting financial stocks - The cause of this excessive greed and debt bubble, companies who are themselves victims of what these financial instituations created, are being shorted.
My energy and utilities stocks are taking a hit daily - stuff their earnings they are still good companies with sound balance sheets. This doesn't stop the shorting #$&!@. They are the symptom of what is going on not the cause.
The banks should be shorted to hell. Don't worry you'll still get the dividends.
I got burnt like the rest by holding CBA shares.
Nero
Instead of shorting financial stocks - The cause of this excessive greed and debt bubble, companies who are themselves victims of what these financial instituations created, are being shorted.
My energy and utilities stocks are taking a hit daily - stuff their earnings they are still good companies with sound balance sheets. This doesn't stop the shorting #$&!@. They are the symptom of what is going on not the cause.
The banks should be shorted to hell. Don't worry you'll still get the dividends.
I got burnt like the rest by holding CBA shares.
Nero
Is there an actual list of individual companies rather than just saying the sector is banned?
Ive looked around on the ASIC website and cant find a list.
This got me thinking, who defines under what industry sector a company belongs too? Can a company ask to change its sector listing? I always assumed that the ASX has a list of sectors and when a company applies to be listed, it tells the ASX what sector it belongs to.
Any company can make up BS that its a financial company. A retailer can say that by offering a product on layby they are providing a financial service. Therefore we should be covered by the ban too.
Ive looked around on the ASIC website and cant find a list.
This got me thinking, who defines under what industry sector a company belongs too? Can a company ask to change its sector listing? I always assumed that the ASX has a list of sectors and when a company applies to be listed, it tells the ASX what sector it belongs to.
Any company can make up BS that its a financial company. A retailer can say that by offering a product on layby they are providing a financial service. Therefore we should be covered by the ban too.
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Any company that is in the S&P ASX200 financial sector plus 5 others. Those being Wesfarmers, Rock Building Society, Wide Bay, Futuris and Calliden.
http://www.asic.gov.au/asic/asic.ns...ing+for+non-financial+securities?openDocument
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Has there been any proof in the US or UK that shorting has actually caused stock prices to be decimated. And I mean proof that can be substantiated, not "we think that shorting has caused a fall in prices because..."
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Thought I would voice my opinion on this subject, back in September I was asked by a US publication to write an article on the short selling ban and how it affects pair trading. These bans are more political than having a material effect. I refer to the SEC short selling ban however the same opinion applies to the FSA in London and ASIC here and other financial governing bodies around the world.
------------------------------------------------------------
The SEC enforcing a short selling ban(naked & covered) on 799 financial stocks is an unprecedented government move in what was an otherwise free market. This has also had the effect of shifting the blame to short sellers for causing the financial collapse of some big names. Yes hedge funds took advantage of this downturn, however they are not the cause. The real reason for the collapse was broken business models, the business's were built on the premise that cheap credit and rising asset prices would never stop, predictably they were wrong. The stem of the problem was lending to people who just simply could not afford the mortgage, if interest rates were to rise or value were to decrease they would lose their home, and this was done between 2001-2007 to the degree of 2 trillion dollars on the back of very low interest rates and un-ethical lending. The banks created the securitized packages containing these time bombs and flogged them off around the world and held some themselves, all highly leveraged. Come Mid 2007 interest rates have gone up, the housing bubble has come to an end and defaults are gaining momentum, all of a sudden people wake up to this and hit the panic button, exit mortgage backed securities now! thus resulting in sharp declines and the true value of these instruments were marked to market & exposed. This froze the credit markets as no one wants to purchase mortgage backed securities not knowing the true volume of defaults and the significant doubt of future yield.
Wall St Banks rely on a constant flow of credit to keep it alive, since they created these false securities which in turn significantly reduced the integrity of credit markets, they could no longer keep themselves afloat, no buyer wanted to step in because of the highly leveraged poor quality assets held on their balance sheets. It wasn't shorts that led to the sharp declines of their shares rather no bids holding the price or willing to accumulate shares because no one wanted to buy them. Short sellers could never short sell a quality business into the ground because a real bid would come in as they recognize true value(warren buffett, private equity, other companies). Could Wal Mart be taken hostage by the supposed ''evil hedge funds'' and it share price hammered to 40 cents? Never! because a real business stands underneath the stock price, not a highly geared balance sheet holding poor quality assets. So the greed resulting from low interest rates and the credit lending explosion has resulted in the market naturally filtering out the excesses including FNM, FRE, AIG, LEH, BSC, MER which all have broken business models that were based on cheap credit and rising asset prices never stopping.
Yes this does affect pair trading dramatically. Most of the shorts in the market would be countered with longs, since most hedge funds employ a statistical arbitrage(pair trading) strategy which provides liquidity and true value to the market. They aren't initiating their longs now which drys up buying of stocks too. Without the possibility of short selling, true price discovery doesn't exist, its a artificial attempt to create a temporary bull market. China has had an entire ban on short selling for a long time yet that hasn't stopped their market falling more than 60% over the last year. Short selling is also a good tool to keep companies and their executives honest, if a company practices unethical management, lending, leveraging, hiding they should be punished and the true long term value of the company should be shown, banning short selling doesn't allow this.
The impact of extending the short selling ban for further time or to other stocks could quite dramatically change the integrity of the US economy. Traders, funds, instuitions will still want to hedge and have downside protection which is the whole idea of shorting. Hedge funds making money on the short side is exactly what their supposed to do, their Hedge Funds! If the banning or targeting of the short selling culture were too continue if would likely result in a black market been created for gaining short exposure, whether thru credit default swaps, lending your stock directly to a 3rd party or an off-shore hidden structure to achieve the same, just the same if you were to ban tabacco it would create a black market as people still need it. It's better that short selling be done on an exchange were there's liquidity, transparency and low counter-party risk. I don't mine limiting naked short selling, but banning covered short selling is a band aid fix to a long term problem caused by a few and the weak business models they created. Pair traders have now been looking to other foreign markets, exotic derivative markets or other under-the-table measures to gain short exposure. Also when the ban is lifted there is going to be a backfill of shorts waiting to gain downward exposure in the financials, so you can't keep holding up a castle of cards built on sand.
The government has to share the blame with the big banks who together created this mess. The banks lent to people who shouldn't have be lent the money, they then leveraged these assets and sliced and diced them to every major fund in the world. The government allowed un-ethical, un-regulated and un-sustainable lending from banks to unknowingly people. The same happened in the credit default swaps(CDS) market which is said to have 50 trillion in derivative value, although no one is quite sure because there isn't even an exchange for records, its done under the table between big banks and this is the main reason why the government won't let these companies go down, because it would trigger a default in the bonds which these CDS's insure which would then create a domino & halo effect in the entire global financial system drowning all of us into a depression that would make the 1930's look like a walk in the park.
The SEC short selling ban is a political scapegoat that gives politicians & their follower's someone to blame(the hedge funds) which people inside the industry with true knowledge of the matter know that's simply not true at all. They should lift the ban on short selling and focus their energy & efforts on a more ethical & intelligent regulatory framework so this doesn't happen again.
By Jared Mann
26th September, 2008.
------------------------------------------------------------
The SEC enforcing a short selling ban(naked & covered) on 799 financial stocks is an unprecedented government move in what was an otherwise free market. This has also had the effect of shifting the blame to short sellers for causing the financial collapse of some big names. Yes hedge funds took advantage of this downturn, however they are not the cause. The real reason for the collapse was broken business models, the business's were built on the premise that cheap credit and rising asset prices would never stop, predictably they were wrong. The stem of the problem was lending to people who just simply could not afford the mortgage, if interest rates were to rise or value were to decrease they would lose their home, and this was done between 2001-2007 to the degree of 2 trillion dollars on the back of very low interest rates and un-ethical lending. The banks created the securitized packages containing these time bombs and flogged them off around the world and held some themselves, all highly leveraged. Come Mid 2007 interest rates have gone up, the housing bubble has come to an end and defaults are gaining momentum, all of a sudden people wake up to this and hit the panic button, exit mortgage backed securities now! thus resulting in sharp declines and the true value of these instruments were marked to market & exposed. This froze the credit markets as no one wants to purchase mortgage backed securities not knowing the true volume of defaults and the significant doubt of future yield.
Wall St Banks rely on a constant flow of credit to keep it alive, since they created these false securities which in turn significantly reduced the integrity of credit markets, they could no longer keep themselves afloat, no buyer wanted to step in because of the highly leveraged poor quality assets held on their balance sheets. It wasn't shorts that led to the sharp declines of their shares rather no bids holding the price or willing to accumulate shares because no one wanted to buy them. Short sellers could never short sell a quality business into the ground because a real bid would come in as they recognize true value(warren buffett, private equity, other companies). Could Wal Mart be taken hostage by the supposed ''evil hedge funds'' and it share price hammered to 40 cents? Never! because a real business stands underneath the stock price, not a highly geared balance sheet holding poor quality assets. So the greed resulting from low interest rates and the credit lending explosion has resulted in the market naturally filtering out the excesses including FNM, FRE, AIG, LEH, BSC, MER which all have broken business models that were based on cheap credit and rising asset prices never stopping.
Yes this does affect pair trading dramatically. Most of the shorts in the market would be countered with longs, since most hedge funds employ a statistical arbitrage(pair trading) strategy which provides liquidity and true value to the market. They aren't initiating their longs now which drys up buying of stocks too. Without the possibility of short selling, true price discovery doesn't exist, its a artificial attempt to create a temporary bull market. China has had an entire ban on short selling for a long time yet that hasn't stopped their market falling more than 60% over the last year. Short selling is also a good tool to keep companies and their executives honest, if a company practices unethical management, lending, leveraging, hiding they should be punished and the true long term value of the company should be shown, banning short selling doesn't allow this.
The impact of extending the short selling ban for further time or to other stocks could quite dramatically change the integrity of the US economy. Traders, funds, instuitions will still want to hedge and have downside protection which is the whole idea of shorting. Hedge funds making money on the short side is exactly what their supposed to do, their Hedge Funds! If the banning or targeting of the short selling culture were too continue if would likely result in a black market been created for gaining short exposure, whether thru credit default swaps, lending your stock directly to a 3rd party or an off-shore hidden structure to achieve the same, just the same if you were to ban tabacco it would create a black market as people still need it. It's better that short selling be done on an exchange were there's liquidity, transparency and low counter-party risk. I don't mine limiting naked short selling, but banning covered short selling is a band aid fix to a long term problem caused by a few and the weak business models they created. Pair traders have now been looking to other foreign markets, exotic derivative markets or other under-the-table measures to gain short exposure. Also when the ban is lifted there is going to be a backfill of shorts waiting to gain downward exposure in the financials, so you can't keep holding up a castle of cards built on sand.
The government has to share the blame with the big banks who together created this mess. The banks lent to people who shouldn't have be lent the money, they then leveraged these assets and sliced and diced them to every major fund in the world. The government allowed un-ethical, un-regulated and un-sustainable lending from banks to unknowingly people. The same happened in the credit default swaps(CDS) market which is said to have 50 trillion in derivative value, although no one is quite sure because there isn't even an exchange for records, its done under the table between big banks and this is the main reason why the government won't let these companies go down, because it would trigger a default in the bonds which these CDS's insure which would then create a domino & halo effect in the entire global financial system drowning all of us into a depression that would make the 1930's look like a walk in the park.
The SEC short selling ban is a political scapegoat that gives politicians & their follower's someone to blame(the hedge funds) which people inside the industry with true knowledge of the matter know that's simply not true at all. They should lift the ban on short selling and focus their energy & efforts on a more ethical & intelligent regulatory framework so this doesn't happen again.
By Jared Mann
26th September, 2008.
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Some interesting views in here on the "evils" of the shorts ban on Banks.
For those not clear on why this ban was enacted, you might like to have a look at this report from Wharton Business school in the US on Bear Raids.
http://knowledge.wharton.upenn.edu/printer_friendly.cfm?articleid=1939
Basically, bear market plunges are driven by fear, and have a greater psychological impact than bull runs. Stop losses also get hit which trigger automatic selling (something that doesnt happen (much) in quickly rising markets with pre-set rising buys). So snowballs roll downhill faster than bubbles rise.
In a bear market, having large trading houses dumping truckloads of borrowed stock onto the market fuels the downward spiral - then they sit back, watch the blind panic then buy everything back when (or if) it eventually stops dropping.
So while its not nice thinking about Big Brother interfering in the free market, its also worth noting that not all institutional traders are friendly financial fairy godmothers who just want to let the shares all float gently ever upward little white feathers on mother nature's whim, merrily plotting rainbow coloured HLOC charts looking for that elusive head & shoulders that everyone else has missed in the hope it breaks the first fib retracement so they can tell their chums over tea and cakes and all the clients can share the rewards of their skill.
If they smell blood they simply pour more into the water to attract others to fatten up and feed on. Their job is to make a profit (which they are very good at), not consider consequences (which no one is very good at when it comes to very large sums of money). Without the shorts ban we could be seeing a lot worse scenario than eventuated.
The moral I suppose is to make sure your money is with the right insto..........
For those not clear on why this ban was enacted, you might like to have a look at this report from Wharton Business school in the US on Bear Raids.
http://knowledge.wharton.upenn.edu/printer_friendly.cfm?articleid=1939
Basically, bear market plunges are driven by fear, and have a greater psychological impact than bull runs. Stop losses also get hit which trigger automatic selling (something that doesnt happen (much) in quickly rising markets with pre-set rising buys). So snowballs roll downhill faster than bubbles rise.
In a bear market, having large trading houses dumping truckloads of borrowed stock onto the market fuels the downward spiral - then they sit back, watch the blind panic then buy everything back when (or if) it eventually stops dropping.
So while its not nice thinking about Big Brother interfering in the free market, its also worth noting that not all institutional traders are friendly financial fairy godmothers who just want to let the shares all float gently ever upward little white feathers on mother nature's whim, merrily plotting rainbow coloured HLOC charts looking for that elusive head & shoulders that everyone else has missed in the hope it breaks the first fib retracement so they can tell their chums over tea and cakes and all the clients can share the rewards of their skill.
If they smell blood they simply pour more into the water to attract others to fatten up and feed on. Their job is to make a profit (which they are very good at), not consider consequences (which no one is very good at when it comes to very large sums of money). Without the shorts ban we could be seeing a lot worse scenario than eventuated.
The moral I suppose is to make sure your money is with the right insto..........
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Lemme guess?
I predict that in a little over a month from now (ie: a week or two before the deadline of 31st May when the current SHORT BAN on financials is supposed to be lifted) an announcement will be made that "the current shorting ban will be further extended indefinitely, until such time as authorities decree otherwise".
I'll even go so far as to tip an "up-tick" rule will be introduced as well. Maybe one where you are banned from selling a stock unless the SP has first gone up 10% from the previous day's close first?
Just gotta protect that *bubble* of "rising SP goodness" at all cost, eh?
I predict that in a little over a month from now (ie: a week or two before the deadline of 31st May when the current SHORT BAN on financials is supposed to be lifted) an announcement will be made that "the current shorting ban will be further extended indefinitely, until such time as authorities decree otherwise".
I'll even go so far as to tip an "up-tick" rule will be introduced as well. Maybe one where you are banned from selling a stock unless the SP has first gone up 10% from the previous day's close first?
Just gotta protect that *bubble* of "rising SP goodness" at all cost, eh?
nulla nulla
Positive Expectancy
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Good post. The concept of short selling in a downtrending stock to take advantage of the resultant price difference is not unreasonable. It is the extent of market manipulation by large capitalised hedge funds, that can deliberately push a share price down to their own advantage, that is unreasonable.
The large players with deep pockets can out manouver and outlast the general investors. As long as they keep paying the lender of the shares the fees, until they achieve their goal, they can then buy back the shares at the lower price when it suits and return the shares to the lender while pocketing the difference.
