SEC’s Job Is Not To Be Best Friends With Stock Short Sellers

Discussion in 'Economy' started by JimofPennsylvan, Jul 20, 2008.

  1. JimofPennsylvan
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    JimofPennsylvan VIP Member

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    The SEC, Security & Exchange Commission, is fouling up a decision which is really a “no brainer” decision in not expanding its prohibition on naked short selling in the stock market to all bank, investment bank, mortgage and mortgage insurer stocks. In the past six months confidence in these industries has been shaken terribly, the SEC’s job is to insure confidence, stability and soundness in these vital industries which expanding this short selling restriction would aid.
    This naked short selling behavior clearly violates financially sound practices’ principles. It should be a given in the equities or any investment market that before a person or entity sells a stock or investment instrument it is burrowing that it has a binding agreement to burrow that stock or instrument, concepts such as honesty, for one, compelling call for this to be the case. Ending this shady practice of naked short selling for all financial related industry stocks obviously would generally speaking reduce the amount of short positions for stocks in these industries in the future which would likely reduce the drop in value of stocks in these industries in the future which is a good thing because it is important to the health of the U.S. economy these vital industries be strong.
     
  2. Paulie
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    Paulie Platinum Member

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    There's already regulation in place for this, Reg SHO. How about instead of trying to give the government even MORE power to regulate, they simply fucking USE the regulation they already have in place to protect against this?

    I suppose it would be rather tough to really enforce it to begin with, what with the PPT being hard at work just about everyday with their obvious intervention. The whole 'practice what you preach' issue.
     
  3. BaronVonBigmeat
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    BaronVonBigmeat Senior Member

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    What is "naked" short selling, contrasted with just regular short selling?
     
  4. Charles_Main
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    Charles_Main AR15 Owner

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    short selling in the buff?
     
  5. Paulie
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    Paulie Platinum Member

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    It's nothing different, really. Overall, especially in this case, it's used as a way to get sheep to think those evil investors are out to screw the little guy. Naked shorting isn't even illegal.
     
  6. editec
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    editec Mr. Forgot-it-All

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    Who thinks investors are out to screw the little guy?

    They're out to make money, which means screwing anybody they can.
     
  7. Paulie
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    Paulie Platinum Member

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    Well, ever since this whole "oil crisis" started, people have all the sudden become "informed" about investing, economics, finance, etc. People have this idea that investors are SCREWING us in the oil market, when there really isn't definitive proof of exactly what the problem is.

    So I see this thread as nothing more than scare tactics to get people to advocate even MORE regulation, against what is being perceived as something way worse than it is. Everyone's got their eyes on the market now.

    And you speak of investors too absolutely. Not every investor is a big boy, screwing the little guy. I invest, and I don't intentionally screw ANYONE.

    But the overall point is, naked short selling is not necessarily illegal, and there's regulation ALREADY in place to combat the naked shorts that ARE illegal. So in closing, there's no need for any more regulation. Just USE WHAT'S THERE. That's the problem. The government doesn't even adequately use much of the regulation they already have, so the answer ends up being ADD MORE REGULATION???

    It's ridiculous.
     
    Last edited: Jul 21, 2008
  8. William Joyce
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    William Joyce Chemotherapy for PC

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    Similarly, there's this idea that mortgage lenders are "predatory" and need to be reformed/regulated/etc., but I'll be goddamned if I've ever seen the media knock on the door of someone who just didn't pay their mortgage for whatever reason. There's been no suggestion that banks or anyone else were LYING to people. But, problems arise, and it's gotta be anyone's fault but individual human beings.
     
  9. Paulie
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    Paulie Platinum Member

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    Mortgage lenders can be as predatory as a hungry lion in the jungle for all I care. There's always going to be someone who understands your mortgage details if you happen to be uninformed. You're already signing your life away for the better part of your life, and spending hundreds of thousands of dollars, most likely. You would think that spending another couple bucks to get someone with knowledge to scan your mortgage agreement and inform you of every stipulation, and what it means to you, would be a no brainer.

    But no, people need someone to blame. So why not the banks?
     
  10. gonegolfin
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    First, I assume that you referring to short selling equities. Here, short selling requires that shares be borrowed from an available source. Thus, a short seller borrows shares from someone holding a long position and then sells those shares. With naked shorting, those shares are not borrowed. Now, in both cases, shares are borrowed into existence (where have you heard of that type of operation before?). This is true in the case of a non-naked short because the long-holder still has the shares (is receiving dividends and has the option to sell those shares). This artificially inflates the float and number of shares outstanding (although the new shares do not have voting rights and are not eligible for dividends). There really is not much difference between a naked short and a non-naked short ... except that disallowing naked shorting places a cap on how many shares can be shorted. If a broker cannot find shares to borrow for someone attempting to short, that someone cannot take out a short position.

    Which leads me to shares of stock you own in a brokerage account. If you own long positions and want to ensure that your stock is not used against you (lent to a short), you need to inform your broker that you will not allow your shares to be borrowed (this may only be relevant in a margin account, but I am not sure). Of course, you never really know if they are following the rules with respect to your request. To be sure, you can elect to hold the share certificates yourself (not in street name).

    Note that shorting in derivatives is a different scenario. With derivatives, you have a short for every long. These are bets on the future price of an underlying security. When you are referring to a stock, you do not have a short for every long. In this situation, the short seller is selling something they do not own (regardless of whether it is a short or a naked short). This is why I believe that short selling equities should not be allowed. It simply is not natural.

    Brian
     
    Last edited: Jul 22, 2008

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