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Short sale ban!


Alekbaylee
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Guest Hester

Unsurprising to see that international governments are still willfully engaging in massive market manipulation.

 

Censoring the opinion of a large group of people with capital they are willing to risk never... NEVER works out well in the long run. If you believe in free markets even a little this should disgust you.

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Wow! Tonight, 4 European countries decided to ban short sale.

Sorry, only have the link in French :

 

http://fr.news.yahoo.com/interdiction-des-ventes-%C3%A0-d%C3%A9couvert-en-belgique-france-212031531.html

 

here's the link from Bloomberg News:

http://www.bloomberg.com/news/2011-08-11/france-italy-spain-belgium-to-impose-short-sale-curbs-regulator-says.html

 

Anyway,... investors might short via a workaround on foreign markets,.. like buying european shares as an ADR or another negotiable security that represents the underlying securities of a non-U.S. company that trades in the U.S. financial markets.

 

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Unsurprising to see that international governments are still willfully engaging in massive market manipulation.

 

Censoring the opinion of a large group of people with capital they are willing to risk never... NEVER works out well in the long run. If you believe in free markets even a little this should disgust you.

 

Oh, but shorts are bad Hester!  You should know that by now ;)

 

 

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Can someone explain a short sale? I understand that the person who sells short believes (hopes?) the stock price will go down, but isn't there a REQUIREMENT that you own (or is it borrow?) the stock first? Or is that Naked short selling, which I thought was already illegal, but is never enforced (I have no idea why that is, or if it is true).

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Can someone explain a short sale? I understand that the person who sells short believes (hopes?) the stock price will go down, but isn't there a REQUIREMENT that you own (or is it borrow?) the stock first? Or is that Naked short selling, which I thought was already illegal, but is never enforced (I have no idea why that is, or if it is true).

 

I don't know if it is a serious question given that you seems to be familiar with naked short selling also.

 

Anyway, a very simplified version ->You borrow the stock at certain cost, sell the stock and hope that the stock goes lot more than the cost of borrowing the stock. Then you buy the stock back when it's down and return the stock to original owner you borrowed from.

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This is ridiculous. I shorted 100 shares of VXX  last week. Scottrade called me to cover before Monday 8/15/2011;otherwise, they might buy the shares for me. VXX is one of the most liquid ETFs in the market, scottrade can not even borrow 100 shares from somewhere? How can anyone short with the risk that your broker might force you to buy back any time?

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That is what I am asking. Why would they ban short sells, as long as they are done in a legal manner? (Didn't Walter Schloss make a bundle off of a Yahoo short?) And why don't they enforce the ban on NAKED shorts, which, if I can infer, is when you don't own (or borrow) the stock beforehand? (is that correct?)

 

It seems like another instance where regulators (and/or politicians) want to look like they are doing something/anything, when all they have to do is enforce existing statutes/rules/regulations.

 

Thanks for the explanation.

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Guest Hester

This is ridiculous. I shorted 100 shares of VXX  last week. Scottrade called me to cover before Monday 8/15/2011;otherwise, they might buy the shares for me. VXX is one of the most liquid ETFs in the market, scottrade can not even borrow 100 shares from somewhere? How can anyone short with the risk that your broker might force you to buy back any time?

 

The VXX is one of the most heavily shorted and difficult to borrow of any major ETF. This is because everyone knows its doomed long term, and if one can short and handle the volatility it's free money. Of course, the catch is that everyone does this and the free money goes away. Scottrade, like most retail brokers does not have great short inventory, but they also probably don't charge any hard to borrow fees on the inventory they do have. Consider it a miracle you even got the borrow to begin with. You can switch to IB if you want to short anything, like the VXX, but be prepared to pay some HTB fees, enough to take away any free lunch on trades like the VXX. Also, they won't let you do a 130/30 model and reinvest the short proceeds.

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Guest Hester

Actually some studies show that short sale bans can be effective during panics, I am for them!

http://69.175.2.130/~finman/Publications/JAF/2011/Nguyen.pdf

 

Of course it's "effective." If the desired effect is to silence negative capital and thus manipulate and artificially inflate securities prices, then yes it is very effective. You know what's also effective under this line of thinking? Banning all stock sales. Banning all negative opinions. Currently the market stops trading if it is down 10% in one day. Why not make that down 2%? I can think of plenty of other things that will manipulate stock prices up for a period of time. It doesn't mean we should do them. I'm a liberal guy and believe mostly in responsible regulation, but this is just blatant manipulation in an attempt to make stocks go up. At some point we need to take the free out of free market to accurately describe American stocks.

 

Any study will show that these bans have no effect long term, the stocks eventually crumble. These bans actually increase volatility, so the only effect they have is a short term temporary inflation of stock prices.

 

You guys get in a frenzy when a short causes a stock to go down by releasing well written research reports detailing why the company is worth less than the market price. Yet, when governments enact regulation for the sole purpose of manipulating share prices upwards you support it. Of course.

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