Short-Sale Ban Is Likely to Be Extended Beyond Thursday

NOBama · #1 (**permalink**) 10-01-2008, 04:03 PM

By Charlie Gasparino On-Air Editor (CNBC)

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Some worry that the short-sell ban gives an artificial boost to bank stock prices that could come back to haunt investors later.

In turn, those holding sizeable portions of the stocks, such as employees of larger institutions like Goldman Sachs [GS 134.50 6.50 (+5.08%) ] and Morgan Stanley [MS 24.42 1.42 (+6.17%) ] can benefit the most from the ban on shorts, while the rest of the market could be set up for trouble.

"They're totally inflating it," says Dave Rovelli, director of US equity trading for Boston-based Canaccord Adams. "Once this ban gets lifted the (bank) stocks are going to get annihilated. Nothing's really changed."

Full article

Paulie · #2 (**permalink**) 10-01-2008, 04:09 PM

Yeah, the only time regulation is used is when it's in the best interest of the establishment.

Why don't they give investors one good reason why they shouldn't be shorting the financial market. These banks are insolvent anyway. They're going down with or WITHOUT their shares being short sold.

NOBama · #3 (**permalink**) 10-02-2008, 01:36 PM

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WASHINGTON (AP) -- Federal regulators on Wednesday extended an unprecedented ban against all short-selling in the shares of more than 800 financial companies, keeping it in place at least until after Congress enacts a massive financial bailout plan.

The Securities and Exchange Commission announced the extension of the ban, which was put in on Sept. 18 in a bid to shore up investor confidence in the face of the spiraling market crisis.

The ban, which was to expire Thursday, now will last until the third business day after enactment of the $700 billion financial bailout plan now before Congress. It will end no later than Oct. 17.

Full article

Patiently, I wait.

gonegolfin · #4 (**permalink**) 10-02-2008, 02:22 PM

Quote: Originally Posted by Paulitics

Yeah, the only time regulation is used is when it's in the best interest of the establishment.

Why don't they give investors one good reason why they shouldn't be shorting the financial market. These banks are insolvent anyway. They're going down with or WITHOUT their shares being short sold.

Actually, I think that the short ban will backfire on the regulators (and probably already is). Non-naked short selling does provide important liquidity to the markets. It is also an essential tool for hedge funds that are significantly net long. Short positions are used to hedge large long positions. I use put options often to hedge reasonably large equity stakes in Gold, Silver, and Energy equities. I think that you will see this result in hedge funds being much less likely to jump back into the market on the long side (if they cannot hedge their long bets). In the meantime, there will be more losses for the hedge funds as they will be forced to sell good assets (and many long positions) to raise cash for redemptions. I think this is one of the reasons why we have seen big sell-offs on the Comex in Gold and Silver. One other reason is big shorting by JP Morgan and possibly one other big bank.

This is one type of intervention in the world's tightly coupled financial markets that is having unintended consequences. I will discuss another unintended consequence in the $700 billion bailout plan that will likely make the credit situation for corporations in this country even worse, in my next writing.

Brian