Should shorting be suspended/banned?

[Trembling Hand]

I do struggle with the concept of selling something that I don't actually own

Its just a loan. Do you struggle with the rest of capitalism?

 

[Whiskers]

Seems to be some concern that a significant proportion of shorts were of the "illegal" variety.



aj

That's my point also, that seems to be lost by some.

Naked shorts that don't settle in the proper time or fail to eventually settle at all causes excessive downward pressure before they are bought back.

A few cowboys seem to be forcing the hand of lawmakers to intervene.

http://www.investopedia.com/terms/n/nakedshorting.asp

 

[Trembling Hand]

Of course Whiskers you have checked your facts and know what amount of transactions fail to settle and weigh that against turnover to determine that it IS a significant amount to manipulate prices.......

 

[Bushman]

Ban excessive leverage per se. But don't ask me yet what is an 'excessive' level.

ASX/ASIC should have LVR and ICR on all ASX listed industrial and financial stocks. And these should be on a 'look through' basis so it captures the CNP, BNB, AFG's and the like. Straight forward I would have thought and it is what the Financial Regulators require of the banks in Australia already.

And yes I know this is what auditors are meant to do but they have repeatedly failed. Lets face it - this has been a systemic failure of the audit industry once again (as well as the head-lines attributed to the ratings agencies).

This is how the debt side of things works. Why not the equity?

The other bit of regulation I would like to see is over pay packets. The model should reward solvency first, then outperformance! It should never, ever be based on market cap and it should be based on long-term profitability, not year-by-year. You should NOT be rewarded for betting the farm.

 

[Datsun Disguise]

Its just a loan. Do you struggle with the rest of capitalism?

ha ha ha Recently very much so!!!

It's more than a loan though when you are borrowing from people who do not know that you are borrowing from them (Opus dei, opus mentus - ah thats right opus prime, we seem to have forgotten about that one)

 

[Whiskers]

Of course Whiskers you have checked your facts and know what amount of transactions fail to settle and weigh that against turnover to determine that it IS a significant amount to manipulate prices.......

So I suppose you have proof that it's not happening eh TH?

Some of you guys are hell bent on playing up the systemic failure of governments in the economic sense, but oh what... they have not stuffed up the regulation of the trading system.

Unfortunately, I'm not privy to all the necessary data as I'm sure you are not either.

The point is TH, if you are playing by the rules and everyone else is playing by the rules your consciones is clear... it'll all be a big non event, won't it.

Geez some of you guys are so touchy about your precious trading systems.

 

[Whiskers]

ASX/ASIC should have LVR and ICR on all ASX listed industrial and financial stocks. And these should be on a 'look through' basis so it captures the CNP, BNB, AFG's and the like. Straight forward I would have thought and it is what the Financial Regulators require of the banks in Australia already.

And yes I know this is what auditors are meant to do but they have repeatedly failed. Lets face it - this has been a systemic failure of the audit industry once again (as well as the head-lines attributed to the ratings agencies).

This is how the debt side of things works. Why not the equity?

The other bit of regulation I would like to see is over pay packets. The model should reward solvency first, then outperformance! It should never, ever be based on market cap and it should be based on long-term profitability, not year-by-year. You should NOT be rewarded for betting the farm.

I certainly concur there too, Bushman.

 

[Trembling Hand]

Whiskers I have no probs with more regulations to sure up short selling. None at all. But you suggested that the tiny amount of unsettled trades (I will try and fine the data but from memory its absolutely minuscule) were causing "excessive downward pressure". Is that right??

 

[Whiskers]

Whiskers I have no probs with more regulations to sure up short selling. None at all. But you suggested that the tiny amount of unsettled trades (I will try and fine the data but from memory its absolutely minuscule) were causing "excessive downward pressure". Is that right??

What I'm saying is if the three day settlement rule isn't being strictly adhered to, ie if some, even only ocassionally let it ride out to four or five or whatever days, on top of those that do not settle, it ought to be prosecuted as improper conduct or manipulating the market as the case may be.

 

[Trembling Hand]

Ok fair enough. What about Commsuc and the like letting punters purchase stocks without any cash?? People are day trading on T3 without any need to have dollars in their account? How nutz is that.

Commsuc should be shot!!

 

[Whiskers]

Ok fair enough. What about Commsuc and the like letting punters purchase stocks without any cash?? People are day trading on T3 without any need to have dollars in their account? How nutz is that.

Commsuc should be shot!!

Agree there. Was very surprised to hear that was happening.

 

[noirua]

I think we are coming to the time when other countries follow the UK and suspend shorting in certain sectors for a set period.

The ASX could/should be given powers to suspend
shorting in any stock for a period of up to three months. Even to the extent of freezing all short contracts that are in place.

 

[Timmy]

Sorry, its a bit late now, but maybe should be on the table for future debate. I think the interests of Australia's mum and dad investors would have been best served by banning being long over the last few weeks.

 

[freddy2]

I think we are coming to the time when other countries follow the UK and suspend shorting in certain sectors for a set period.

The ASX could/should be given powers to suspend
shorting in any stock for a period of up to three months. Even to the extent of freezing all short contracts that are in place.

Ridiculous, would you be happy for the ASX to also suspend going long certain shares because the price has gone up too much.

Looks like the incompetent/corrupt/greedy company directors and investors are being successful in deflecting blame onto others (eg shorters) for losing huge amounts of money.

 

[Timmy]

Looks like the incompetent/corrupt/greedy company directors and investors are being successful in deflecting blame onto others (eg shorters) for losing huge amounts of money.

Yep.

 

[noirua]

Ridiculous, would you be happy for the ASX to also suspend going long certain shares because the price has gone up too much.

Looks like the incompetent/corrupt/greedy company directors and investors are being successful in deflecting blame onto others (eg shorters) for losing huge amounts of money.

In my view, "GUILTY AS CHARGED!"

 

[nomore4s]

Ridiculous, would you be happy for the ASX to also suspend going long certain shares because the price has gone up too much.

Looks like the incompetent/corrupt/greedy company directors and investors are being successful in deflecting blame onto others (eg shorters) for losing huge amounts of money.

lol, yep the media and general public have fallen for it hook line and sinker.

This correction is purely because of unregulated short selling, nothing to do with fundamentals or big companies losing billions and going broke - I mean why would that drive share prices down.

 

[Bushman]

Sorry, its a bit late now, but maybe should be on the table for future debate. I think the interests of Australia's mum and dad investors would have been best served by banning being long over the last few weeks.

LOL, yes that's it, ban investing. Then no-one will ever lose any capital!

 

[awg]

I dont think short selling should be banned, it is an integral part of the system

however it seems that some aspects, such as trustees renting out stock, unbeknown and at at detriment to the beneficial owners and other more extreme methods should be examined with a view to possible regulation.

my view is that in any society, the greater good is an overriding consideration.

if a certain financial engineering method can be utilised by a very few sophisticated users to profit at the expense of the vast majority, and especially damage, then it needs examination...like any other business method...raping the "community" is usually dealt with in some way by restriction.

I dont think this is too naive.

it would also apply to other practices such as highly leveraged multiple CDS, the aim being to make a mega profit, and often to pay very little tax, if u are a multi national corp.

anyone knows that 99% leverage is extremely risky...it seems to me to be a failure in regulation to allow over $60 trillion in CDS to be leveraged up like this.

I try to use commonsense tests in my investments..ie a stress test..what if the market goes down 20%..40% etc.

so 99% leverage( on massive positions) fails that test on a number of grounds, including illiquidity in a volatile market, tha fact that 20%+ falls are commonplace, and the obvious fact that hedging can fail in a number of different ways, especially counterparty failure.

the fact that much better brains than me have failed miserably is little consolation

 

[Timmy]

if a certain financial engineering method can be utilised by a very few sophisticated users to profit at the expense of the vast majority, and especially damage, then it needs examination...

Are you referring to short selling as being financial engineering and only available to few sophisticated users? Short selling is actually very straightforward and requires only a little thought, it is also available to anyone with a reasonable grasp on the subject. All relevant information can be found on public forums, like this one.

The recent turmoil is a failure of regulation, not a result of short selling.