IFocus
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Short Selling Debate
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wayneL
VIVA LA LIBERTAD, CARAJO!
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Minor detail
Haha! Never let the facts get in the way of a good story, eh?
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After reading this thread I feel more informed about hedge funds and the part they play, thanks for all the posts, I too was negative.. well still struggle with the ideal of it but I can see its usefulness in practice. Correct me if I'm wrong, but in a simple analogy wise they are like maggots on rotting meat, while they can feed off the corporates dead meat they will until reach good flesh, then the body lives and the maggots die off. Or if the meats rotten to the core they'll finish it off, lol gruesome analogy but creates by nature an amplified time frame in terms of companies failings, focusing on those in distress for one reason or another. Effectively making the pain sharper\quicker in short term losses, though inevitable in outcome overall. That's provided their not manipulating the SP despite fundementals and creating negative sentiment deliberately.
What I'm interested in though is the fees charged by the prime brokers and so forth on lending target stocks out, eg if it's my stock holdings their offsetting against, where's my slice of the action. I own them, if they are loaning them out by default, assuming a fall, surely since based on my holdings I should get some of that fee generated kicked back to me
What I'm interested in though is the fees charged by the prime brokers and so forth on lending target stocks out, eg if it's my stock holdings their offsetting against, where's my slice of the action. I own them, if they are loaning them out by default, assuming a fall, surely since based on my holdings I should get some of that fee generated kicked back to me
On "Inside Business" at the weekend Alan Kohler said that "The ASX likes stock lending because it increases the volume of trading, and ASIC (Australian Securities and Investments Commission) probably didn't know about it." More nonsense - it is extremely unlikely that ASIC was not aware of stock lending practices, so perhaps the reality is that Alan Kohler is only now learning the facts about shortselling. At least he now seems to be coming round to the view that transparency, or the lack of it, may be the problem.
Trojax, nobody replied to your post which at least did exhibit commendably high levels of imagination and literacy. Have you ever tried to lodge a sell order with your broker but received a message something like "Sorry, we lent your shares to somebody else, please try again tomorrow"? No? Well, if this did happen then you could take action against your broker because your broker cannot lend your shares to somebody else without your permission.
Trojax, nobody replied to your post which at least did exhibit commendably high levels of imagination and literacy. Have you ever tried to lodge a sell order with your broker but received a message something like "Sorry, we lent your shares to somebody else, please try again tomorrow"? No? Well, if this did happen then you could take action against your broker because your broker cannot lend your shares to somebody else without your permission.
doctorj
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Right - he's clearly after a headline grabber. In his game it's much better to get Joe Public to pay attention to you than to be right.
I haven't read much in this thread beyond Nick's first post, but I can't see short selling as a bad thing.
A quick brainstorm of the positives of short selling:
- A more efficient market
- Provides a profit motive for the discovery of 'negative' information, instead of people only investigating the positives
- Encourages company transparancy (see above)
- Increased market liquidity makes larger position sizes possible
- Reduces transaction costs (slippage)
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This is an interesting thread and I guess there are a thousands 'fors' and 'against'. I trade forex and by its nature I must be shorting a currency. In this context I can't be too bitter and twisted.
But,if a share price is defined by the weight of money rather than the fundamentals of a market or company, then irrespective of what underwrites that source of short selling, it is wrong.
For example, to use short selling as a means of building a superfunds portfolio at a less than fair value is short sighted. Broad participation in markets is fundamental to its efficiency. If a large number of participants (small investors) are to be slammed by a few large investors (superfunds), then small investors will go away. Simple as that. Liquidity will thin.
Possibly the most important facet is that a lot of short selling is not transparent. In an otherwise illiquid ASX stock who knows when a substantial sell order represents a director closing out on inside information; a major shareholder just cashing out or by default, that the market is being intentionally led to believe there is something fundamentally wrong with the company? Or is it a superfund or hedge fund just shorting the market? The weight of money is an inequitable blunt instrument!
In short (excuse the pun), I'm ok with transparent short selling in a liquid market (eg 2.4 trillion / day forex mrkt) but I have a lot of trouble with short selling in a very small market such as the ASX.
A simple answer. If someone wants to short the market, irrespective of how the transaction is underwritten, declare the sell order as a shorting order. I would be interested to see how many declared short orders would be placed. A lot less I expect! But a short is a short... I don't agree that by borrowing stock under even an option arrangement makes it any different to a cash underwritten or otherwise naked short.
But,if a share price is defined by the weight of money rather than the fundamentals of a market or company, then irrespective of what underwrites that source of short selling, it is wrong.
For example, to use short selling as a means of building a superfunds portfolio at a less than fair value is short sighted. Broad participation in markets is fundamental to its efficiency. If a large number of participants (small investors) are to be slammed by a few large investors (superfunds), then small investors will go away. Simple as that. Liquidity will thin.
Possibly the most important facet is that a lot of short selling is not transparent. In an otherwise illiquid ASX stock who knows when a substantial sell order represents a director closing out on inside information; a major shareholder just cashing out or by default, that the market is being intentionally led to believe there is something fundamentally wrong with the company? Or is it a superfund or hedge fund just shorting the market? The weight of money is an inequitable blunt instrument!
In short (excuse the pun), I'm ok with transparent short selling in a liquid market (eg 2.4 trillion / day forex mrkt) but I have a lot of trouble with short selling in a very small market such as the ASX.
A simple answer. If someone wants to short the market, irrespective of how the transaction is underwritten, declare the sell order as a shorting order. I would be interested to see how many declared short orders would be placed. A lot less I expect! But a short is a short... I don't agree that by borrowing stock under even an option arrangement makes it any different to a cash underwritten or otherwise naked short.
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I was informed today that the asx in conjunction with asic have announced a royal commission into hedge funds short selling,i managed to obtain a cv & profile of the presiding justice.the terms of reference will be "are those long shorts or short longs"???lol...
Tigerboi - I have made that monkey your avatar so now you don't have to attach it to every single one of your posts.
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yeah i just sent you a pm i love it as i have it elsewhere makes me laugh heaps everytime i see it,i been wondering when you would approve of a new avatar,as i had him elsewhere i was unsure if i should also give him a fulltime run here...lol..cheers tb
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Look out joe blow kennas will get you for spelling & proper grammatical usage regarding my mate here,he hates it if you call him a monkey he'll go bananas!!
hes a lowland ape from gulargambone...
hes a lowland ape from gulargambone...
hangseng
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Interesting read regarding shorting on Bendigo.
1:56 PM Mar 12, 2008 Robert Gottliebsen
Bendigo shafts the shorters
The big rally in the overall market has given the shorters a huge kick in the teeth. But nowhere have they been hit harder than at Bendigo Bank which was earmarked by the shorters as a potential major killing.
As revealed by Alan Kohler (Who's on the short list, March 10) the shorters had borrowed an incredible 14.5 per cent of Bendigo stock from the superannuation and index funds ready for a massive bear raid on the stock. In their usual pattern, to unsettle the market the shorters had started to spread false rumours about the stock – a repeat of what had happened in more prominent situations.
http://www.businessspectator.com.au/bs.nsf/Article/Bendigo-shafts-the-shorters-CN56X?OpenDocument
1:56 PM Mar 12, 2008 Robert Gottliebsen
Bendigo shafts the shorters
The big rally in the overall market has given the shorters a huge kick in the teeth. But nowhere have they been hit harder than at Bendigo Bank which was earmarked by the shorters as a potential major killing.
As revealed by Alan Kohler (Who's on the short list, March 10) the shorters had borrowed an incredible 14.5 per cent of Bendigo stock from the superannuation and index funds ready for a massive bear raid on the stock. In their usual pattern, to unsettle the market the shorters had started to spread false rumours about the stock – a repeat of what had happened in more prominent situations.
http://www.businessspectator.com.au/bs.nsf/Article/Bendigo-shafts-the-shorters-CN56X?OpenDocument
Trembling Hand
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Hardly!!
Its not like any smart short would wait till a stock goes from $17 to $9 to short something
prawn_86
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Ok, so with the media attention I too have been trying to get my head around shorting.
Im fairly certain i understand the basic premise.
The way I see it is that going short affects the market no more or less than going long. One cannot drive the price down (significantly) by going short, just like one cannot raise a price by going long. (Obviously this is for smallish volume transactions).
So the media saying that short selling drives down price is a crock. Am i correct with this?
What should really be looked into is if hedge funds are colluding in order to short stock off of each other, then dispose and repeat. This would drive the price down, but is much more to do with collusion than shorting.
Please let me know if I am right or wrong with any of my assumptions...
Im fairly certain i understand the basic premise.
The way I see it is that going short affects the market no more or less than going long. One cannot drive the price down (significantly) by going short, just like one cannot raise a price by going long. (Obviously this is for smallish volume transactions).
So the media saying that short selling drives down price is a crock. Am i correct with this?
What should really be looked into is if hedge funds are colluding in order to short stock off of each other, then dispose and repeat. This would drive the price down, but is much more to do with collusion than shorting.
Please let me know if I am right or wrong with any of my assumptions...
hangseng
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Hardly!!
Its not like any smart short would wait till a stock goes from $17 to $9 to short something
You have misunderstood.
The shorters had already been at their game and then BEN rallied hard, catching them off guard (the implication of the article) i.e. they were in there boots and all.
The shorters didn't wait until $9 as you imply.
wayneL
VIVA LA LIBERTAD, CARAJO!
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There is much cognitive bias regarding shorting.
Look at the different language used when there is an upwards retracement in a downtrend, to when there is a downwards retracement in an uptrend.
Look at the different language used when there is an upwards retracement in a downtrend, to when there is a downwards retracement in an uptrend.
Kauri
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interesting read.....
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/21/nhedgie121.xml
Cheers
...........Kauri
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/21/nhedgie121.xml
Cheers
...........Kauri
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hangseng
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Now they should be forced to evidence how this practice provides benefits/returns to the super fund (and not to the fund managers).
Can we 'TRUST' the 'TRUSTEES'? I think not.
Super fund ceases share lending
Adele Ferguson, March 24, 2008
http://www.theaustralian.news.com.au/story/0,25197,23420454-643,00.html
"ONE of Australia's big pension funds, Equipsuper, has publicly withdrawn from share lending, in what is expected to be the start of a mass exit for stock lenders until market integrity is restored."
Can we 'TRUST' the 'TRUSTEES'? I think not.
Super fund ceases share lending
Adele Ferguson, March 24, 2008
http://www.theaustralian.news.com.au/story/0,25197,23420454-643,00.html
"ONE of Australia's big pension funds, Equipsuper, has publicly withdrawn from share lending, in what is expected to be the start of a mass exit for stock lenders until market integrity is restored."
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One recent article quoted someone as saying up to approx 20% of the ASX could be currently sold short through stock lending - which doesn't require records.
If as the article above states there is a mass exit from share lending, shorters will be forced to cover, and if 20% was accurate, some stocks could be in for great and violent short-covering rallies.
If as the article above states there is a mass exit from share lending, shorters will be forced to cover, and if 20% was accurate, some stocks could be in for great and violent short-covering rallies.
hangseng
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One recent article quoted someone as saying up to approx 20% of the ASX could be currently sold short through stock lending - which doesn't require records.
If as the article above states there is a mass exit from share lending, shorters will be forced to cover, and if 20% was accurate, some stocks could be in for great and violent short-covering rallies.
I agree, there could be a significant knock on effect from this.
The saga continues
So people like madness and Irrational Exuberance to drive stock up but doesn't like it when people discover the stock is a pile of sh*t and short it?
These short seller are not some junkies who just punk their money..these are the clue guys of financial world, they look through your book and see your weakness and attack it.. It make the market efficient and highlight the stock weakness to the public so you can either stay away or join the Irrational Exuberance.
Without hackers computer will not be as secure, these guys discover weakness and make vendor take notice... Same goes with the short seller they high light company weakness and so directors of these company take notice and dont put themselves in the spot light.
Beside short selling cannot be stopped, that article just high light until there is transparency some institution wont lend stock... Transparency is the only thing they can do and I welcome transparency.
Weak company still be under the spot light and they will bring these company down....They done it to Enron, ABS and the like and they will do it to many more in the future. Your only defense is to invest in a well run company with good balance sheet and don't treat cheap debt as some kind of magical weapon to get rich quick.
These short seller are not some junkies who just punk their money..these are the clue guys of financial world, they look through your book and see your weakness and attack it.. It make the market efficient and highlight the stock weakness to the public so you can either stay away or join the Irrational Exuberance.
Without hackers computer will not be as secure, these guys discover weakness and make vendor take notice... Same goes with the short seller they high light company weakness and so directors of these company take notice and dont put themselves in the spot light.
Beside short selling cannot be stopped, that article just high light until there is transparency some institution wont lend stock... Transparency is the only thing they can do and I welcome transparency.
Weak company still be under the spot light and they will bring these company down....They done it to Enron, ABS and the like and they will do it to many more in the future. Your only defense is to invest in a well run company with good balance sheet and don't treat cheap debt as some kind of magical weapon to get rich quick.
