Short selling serves no market function

[nomore4s]

out of curiousity how many actually use direct short selling (as opposed to shorting via derivatives or via CFD's etc.) and if using direct short selling how long are you able to keep positions open?

I use direct short selling through Mac Prime, as far as I'm aware I can keep the position open for as long as I want, but I'm sure they could close the position at any time to "reclaim" the stock but that wouldn't happen very often I wouldn't think.

 

[refined silver]

By the way if you are licking your wounds and feeling pissed off at the Bears have a look at the percentages that are short sold.

http://www.asx.com.au/data/Shortsell.txt

If you thing a short sold market at less than 1% of issued shares has caused this greater than 20% drop..... well you need to stop trading and learn some basic maths.

Thanks for the link. My understanding is that the ASX just announced possibly changing the short selling rules because it was so easy to get round them, and much short selling is not recorded in the official figures. Eg Look up the short positions in the HUI, (US based gold/silver index) http://www.financialsense.com/metals/shorts.html and some shares have short positions of over 10%, virtually everyone is way above 1%, so I find it hard to believe the above Australian figures are remotely accurate, which is why the ASX wants to tighten rules.

BTW I've no problem with short-selling, it serves a valuable purpose, the only problem is manipulative or illegal short selling (eg up til very recently you could only short sell on an uptick, but this was never followed), where big guys always fleece the little guys, and when majors are caught, they pay settlements to SEC or the like, for a few million, without admitting liability, while pocketing 10x more as proceeds of their crime.

 

[refined silver]

Links for the ASX/ASIC shorting rules needing to be updated.

Each one is different but gives a revealing picture of how things are manipulated and very different to the official stats.


http://www.theaustralian.news.com.au/story/0,25197,23145967-643,00.html

http://www.news.com.au/business/story/0,23636,23146895-462,00.html

http://www.theaustralian.news.com.au/story/0,25197,23166412-16941,00.html

 

[Timmy]

Links for the ASX/ASIC shorting rules needing to be updated.

There are requirements to report short sale activity, but getting that information to the market is ridiculously slow . Making the information available in a more timely manner than at present is well overdue.

It will be interesting to see what a review of short selling rules comes up with, if anything. The SEC in the US have recently removed the uptick rule there...

Thanks for the links silver.

 

[cuttlefish]

I am not an economist but is the primary purpose of the market to raise capital? A market is a market....people buy and people sell....if someone has something you want you pay for it....if someone has something a lot of people want you have to pay more...supply and demand...


example: if mrs B and all her day time soap opera friends like fluffy pink slippers and the only company that manufactures them is the Fluffy Pink Slipper Company then I guess shares in the Fluffy Pink Slipper Company (FPS) are the ones to have.

Where is the value in fluffy pink slippers apart from the fact that a bunch of bored rich housewives like them? Get the drift....

Fair enough point - the market provides a vehicle for trading products - as long as the rules around those products are clear then why not. So I don't have a problem with your scenario as long as:

* nobody lends my fluffy pink slippers to somone else to 'sell' without telling me about it - I'm very particular about what happens to my slippers.

* when I buy a fluffy pink slipper, they're real ones and not someone's promise to buy me pink slippers when I need them - I mean I don't want to be the only one at the soapie party that didn't get my fluffy pink slippers delivered.

equity is equity, and if two people are selling the same piece of equity one of them is selling either hot air or a promise.

Reading the articles that refined silver posted - it does highlight the issue - I didn't realise covered shorts weren't in the reported list. But I also think anyone blaming shorting for their bad long positions needs their head read - any stock with real value will always eventually find support if oversold. On the other hand, if the turkey's fried then it doesn't need shorters to help it out the door it'll go down either way.

 

[ROE]

There are speculators on upside why not speculate on down side

 

[cordelia]

Good questions and I wont pretend to have all the answers, but have some suggestions.

Shares that are being short sold are borrowed usually from institutions. The instos are paid "interest" on these shares (its not interest, but the concept is the same). So the insto has the stock, gets the dividends etc. and earns extra "interest.

The shares are borrowed without a necessarily fixed time frame for return. They can be called back by the owner of the shares at his or her discretion.

From reading the above I think you have to agree to lend your shares for shorting and you get paid for it.