Should shorting be suspended/banned?

[nunthewiser]

Dear wayne and TH , u guys seem like a pair of fairly switched on fellows ..... please can u help .. im at odds with myself who i can blame now for this suddern downturn , anyone left to blame ? surely we cant look at the facts now ? please help as im sure between us all we can come up with a viable reason for this new wave of selling that can be passed onto the masses .
yours sincerely
one perplexed nun

 

[noirua]

SEC has announced that 31 stocks will be added to the 799 on the NYSE, where there is a temporary ban on short selling. An email has been sent to all companies asking them to send details, if they believe the criteria laid out includes them, if they think they should be added to the list.

 

[freddy2]

If a companies shares are dramatically reduced in price by shorting of the stock. Then it impacts the companies loan book and banks can call-in loans and this can mean the end of the company. Other companies seeing the fall in price of the company may not wish to trade, suspecting a hidden problem, where in fact one does not exist. In my view this is an unacceptable face of capitalism.

Halifax Bank of Scotland was saved by a takeover by Lloyds TSB after suffering severe shorting of their stock. They are a profitable company.

You didn't answer my question, HBOS was not driven out of business it was taken over. Name 1 company that has gone out of business (eg Lehman Brothers) due to shorting and not their own balance sheet. If a company takes out a loan that depends on stock price they have only themselves to blame when things go wrong (as they surely do). You seem to have cause and effect backwards, companies going out of business causes shorting, shorting doesn't cause companies to go out of business.

I think the "unacceptable face of capitalism" is that you have lost money and want ot blame anyone except for yourself. This not not suprising given it is human nature to take credit when things go well but not when they go bad.

 

[mayk]

There are some rumors that shorting on double listed companies is allowed by ASX. Any confirmations?

Now punters can again say BHP is down because it is dual listed....

 

[noirua]

You didn't answer my question, HBOS was not driven out of business it was taken over. Name 1 company that has gone out of business (eg Lehman Brothers) due to shorting and not their own balance sheet. If a company takes out a loan that depends on stock price they have only themselves to blame when things go wrong (as they surely do). You seem to have cause and effect backwards, companies going out of business causes shorting, shorting doesn't cause companies to go out of business.

I think the "unacceptable face of capitalism" is that you have lost money and want ot blame anyone except for yourself. This not not suprising given it is human nature to take credit when things go well but not when they go bad.

Hi, with all due respect, it is easy to ask questions, however, I can choose to answer in the way i decide to. If you don't like my answers or lack of them, then, so be it.

On HBOS, the shares were driven down to 88 pence from around £10.00. An announcement was made that they were in takeover talks with Lloyds, this saved the day. It was shorting of HBOS that caused the Bank of England to approach Lloyds.

As you mention my financial position, not really relevant to the shorting issue, you will see from my posts over the years that I always keep to 70% to 80% in cash or short term fixed interest.

All the very best in your investments and I hope all goes well for you in the future. Good Luck - noi

 

[freddy2]

Hi, with all due respect, it is easy to ask questions, however, I can choose to answer in the way i decide to. If you don't like my answers or lack of them, then, so be it.

It's even easier to make unsubstantiated claims like "shorters have forced companies out of business".

Like I said it is just human nature to blame the shorters and for politicians to take advatantage of this. Humans see X (shorting) followed by Y (company out of business) and assume X causes Y when in fact it is Z (risky behaviour/ over leveraging/dodgy accounting) that cause X and Y. Basically correlation and causation are confused.

 

[Timmy]

See the US Bank index had the largest fall in HISTORY last night.


WITHOUT short selling. :bonk::eek3::screwy::bad:

Nah - your screen must be upside down or something.

 

[Wysiwyg]

Basically correlation and causation are confused.

If traders were making money short selling stock they would be pithed.The majority of people (still) believe company shares will be an appreciating asset to hold.

 

[wayneL]

It's even easier to make unsubstantiated claims like "shorters have forced companies out of business".

Like I said it is just human nature to blame the shorters and for politicians to take advatantage of this. Humans see X (shorting) followed by Y (company out of business) and assume X causes Y when in fact it is Z (risky behaviour/ over leveraging/dodgy accounting) that cause X and Y. Basically correlation and causation are confused.

Exactly freddy!

If one looks at Uk financials with better balance sheets, HSBC for example, shorting is not an issue.

Compare to Bradford and Bingly, the next UK bank to fall over.

 

[Wysiwyg]

This article shows the causation factor ...

The stock lending loophole changed all that. Hedge funds found they could borrow stock, not just in the approved companies, sell it and not have to reveal a thing. Even better, they could borrow more than the 10 per cent limit and create a run. And the beauty of the scam was that other investors, seeing massive selling, jumped on board thinking someone must know something they don't.

http://business.smh.com.au/business...tale-of-shortselling-super-20080328-227c.html

So there we go, the cause and effect. Worse is super funds lending our stock to short.

 

[Aussiejeff]

This article shows the causation factor ...



http://business.smh.com.au/business...tale-of-shortselling-super-20080328-227c.html

So there we go, the cause and effect. Worse is super funds lending our stock to short.

After considerable deep thought *coff* I blame the immediacy of ..... THE INTERNET!!

BAN IT!! [size=+1]BAN IT!!! [/size][size=+2]BAN IT!!![/size] :bounce:

 

[Timmy]

This article shows the causation factor ...

So, is the problem short selling ... or is the problem that a loophole in the law was exploited? Unfortunately, that is what people do, they exploit loopholes when they can.

The loophole ... well, it was glaringly obvious ... a subsidiary (or licensee, not sure what the correct term would be) of Opes was advertising openly on its website how the loophople worked. I was considering using the service myself but couldn't justify it, CFDs being much easier and cheaper for me as a retail trader.

So maybe the problem is not short selling per se, but a failure to close a loophole by regulators.

On anothr point, the quote you pulled from the article ... maybe you could include another quote from it:

“Short selling ...It's a legitimate trading technique that adds liquidity to a market”

 

[Bushman]

So there we go, the cause and effect. Worse is super funds lending our stock to short.

Now that would make sense to legislate against. If super is a long-term investment, why are managers allowed to beef up annual returns by lending out stock to hedgies and the like? Makes no sense to me.

Most super funds would have had an allocation to the Big 4 banks that have been a big target for the shorters. It has bhit all of us who rely on external managers.

 

[saltyjones]

every shorter for the last 6 months should be rounded up & sent to the julag. mr. putin is waiting.........

 

[freddy2]

Now that would make sense to legislate against. If super is a long-term investment, why are managers allowed to beef up annual returns by lending out stock to hedgies and the like? Makes no sense to me.

Stock lending makes perfect sense for long-term holdings. Who cares about a little bit of price fluctuation, even if negative, in the short term when the price of a stock in 10+ years is determined by the underlying business (ie earnings). In fact if you want to buy more shares the lower prices caused by the shorters will be good for you.

 

[chops_a_must]

Thinking, thinking, thinking. All will be revealed in the fullness of time.

*Twiddles thumbs*

*Birds chirp*

 

[Wysiwyg]

So maybe the problem is not short selling per se, but a failure to close a loophole by regulators.

“Short selling ...It's a legitimate trading technique that adds liquidity to a market”

Yes, yes point taken.

As an indices short seller I have to confess .... when first venturing into short selling I sold a contract with initial stop loss before going to watch a ODI cricket match this year at the Gabba and came home to see $12500 sitting waiting to be locked in after the Index took a rapid dive.Being a small player I had never seen such instant wealth.

Needless to say I have crashed and burned often too.Cuts both ways.

 

[Bushman]

Stock lending makes perfect sense for long-term holdings. Who cares about a little bit of price fluctuation, even if negative, in the short term when the price of a stock in 10+ years is determined by the underlying business (ie earnings). In fact if you want to buy more shares the lower prices caused by the shorters will be good for you.

Why do it though? It's window dressing for fund manager performance. If they are long-term holders of stock, then go long.

 

[chops_a_must]

Why do it though? It's window dressing for fund manager performance. If they are long-term holders of stock, then go long.

What difference does it make?

They'll still write calls, which no-one would have a problem with, yet in reality is a short or at least, negative position.

Realised gains for super funds doesn't really come from stock price appreciation does it?

 

[freddy2]

Why do it though? It's window dressing for fund manager performance. If they are long-term holders of stock, then go long.

Why wouldn't you want to earn an extra whatever (say 1%) if it doesn't make any difference in the long term? The super funds are still long when lending out the stock, the shorters have to give the stock back at some point in time.