Naked Shorting, Naked Buying?

[Lizard]

While pondering the morality of banning shorting while watching the effects of recent emergency measures (which seems equivalent to banning the buying of stock with borrowed money when stocks are in an uptrend), I also ran into this conundrum:

If buying is the opposite of selling
And buying with borrowed money is the opposite of shorting
Is there an opposite for naked shorting?

Conceptually, I guess that would mean someone buying my stock and then hanging onto the cash, telling me they've "borrowed it" off me for a few days at nil interest...

Hidden in all the market mechanisms is there anywhere this actually happens?

[Tok3n]

They'll ban stop losses on long positions soon :)

[peat]

What they will never be able to ban is shorting the USD haha

I think it sucks and its stupid to ban shorts... CNN said "the SEC is preventing manipulation of the markets by manipulating the market"

I'm wondering how this affects US CFD's?

[AMR]

The only time I've done naked buying and shorting is right after a shower...

But seriously, I believe it is possible to buy and sell on the same day with ASB Bank and zero account balance. You get an email asking you to cover the shortfall right away, but you have your T+3 to cover it.

[Lizard]

I'm wondering how this affects US CFD's?

I think CFD providers would tend to take action, not for legal reasons, but because it might not be possible for them to hedge their exposure with underlying market positions?

Personally, I think naked shorting violates logic and acceptable risk as underlying this is a higher than recognised risk to stock buyers in the event that the practice were to become so widespread as to form a "house of cards". But then my understanding of the practice is pretty theoretical and imperfect.

I don't think there is an off-setting market mechanism for naked shorting that counter-balances it - T+3 has a time limit that I think would prevent an "unpaid for long position" being rolled indefinitely as shorts seem to be?

Shorting (via borrowed stock) itself seems more valid, as a mechanism that can counter-balance excessive buying. But I think there is a difficulty with shorting - just as with margin lending - in that it must surely have the potential to prop up (down?) an inverse bubble? Resulting in the usual chaotic volatility when things unwind. The longer short positions can be held, the larger this potential becomes. When a bubble occurs in a stock market, the risk is to stock-holders in paying too much for assets. When an inverse bubble occurs, the risk is to the company being charged too much for capital - eroding their ability to raise equity and (seen of late in companies like AFG) their ability to retain their debt funding. While the ability to raise equity funding isn't necessarily a "right", it is to me a core expectation of listing.

Out of interest, the following ssh shows stock borrowing and transactions on ASX:IBA by Merrill Lynch:
30/4/08 - Ceasing to be a Substantial Holder Notice (http://www.asx.com.au/asxpdf/20080430/pdf/318w9m2hhcvg2f.pdf)
If I had funds with Blackrock Discretionary Funds Management, I'd be wondering why my management team were buying stock when Merrill Lynch (or their clients) were wanting to short and selling it again near the lows when Merrill Lynch (clients) were buying up to return. I guess that's Chinese walls really working then? :rolleyes:

In effect, it seems to me that the only entities affected by a short term ban on short selling is those that were using the speed of modern technology to turn rolling shorts into an equivalent of an indefinite short position. These are the people that have now been forced to cover. Maybe that is no worse than having an indefinite long position on borrowed money - but I suspect those counter-balancing positions are becoming more rare too for now (with the exception of the United States Government?!).

[Deev8]

I think it sucks and its stupid to ban shorts... Preventing someone selling something that they don't own - looking at it that way, it doesn't seem so stupid.

[AMR]

What they will never be able to ban is shorting the USD haha

I think it sucks and its stupid to ban shorts... CNN said "the SEC is preventing manipulation of the markets by manipulating the market"

I'm wondering how this affects US CFD's?

Just recieved from CMC.

Dear Client,
As you may be aware ASIC and the ASX have in effect banned the creation of new short positions in securities, registered managed investment schemes and certain other government securities.
In support of an orderly market CMC Markets is prohibiting shorting the following Australian Share and Sector CFD instruments from 11am (NZ Time) Monday, Sept 22nd 2008:
1. TAL - Tower Australia Group
2. BOQ - Bank of Queensland
3. BEN - Bendigo and Adelaide Bank
4. IAG - Insurance Australia Group
5. Sun - Suncorp-Metway
6. AMP - AMP Ltd
7. MQG - Macquarie Group
8. SGB - St George Bank
9. QBE - QBE Insurance Group
10. ANZ - Australia & New Zealand Bank
11. NAB - National Australia Bank
12. CBA - Commonwealth Bank 13. WBC - Westpac Bank
14. MCW - Macquarie Countrywide
15. CGF - Challenger Financial Services Group
16. IFL - IOOF Holdings
17. ROK - Rock Building Society
18. WBA - Wide Bay Australia
19. AXA - AXA Asia Pacific
20. BNB - Babcock and Brown
21. PPT - Perpetual
22. HGI - Henderson Group
23. AUW - Australia Wealth Management
24. AUSFINANCE - Australian Finance Sector
If you currently hold an open short position, you are not forced to close this and if you need to sell in order to close a long position your order will also be accepted.
International regulators have formalised a similar position and we anticipate that other regulators and authorities around the world will make similar announcements. We will do our best to keep you informed of any changes.

[peat]

yeh I now see that email too AMR

options mkt is big in Australia isnt it? guess that will be knobbled as well coz writing a call is same as shorting a market in my book.

seems crazy when you're complaining about liquidity in markets to stop people trading in either direction. I reckon spreads will widen.

[peat]

Stolen from an EWI email


Short sellers do perform an important and unique service, but you needn't take my word for it. I'll conclude with a quote from an essay that ran in the New York Times (Oct. 6, 2006), by a former SEC lawyer who had actually studied short sellers and their trades:
"As an enforcement lawyer at the S.E.C., I received from short sellers early warnings on certain companies that led to the capture and return to investors of hundreds of millions of dollars taken by stock frauds. Such information came from no other source — certainly not from institutional stock analysts. Representing short-biased hedge funds as a part of my practice as a private lawyer, I continued to be impressed by their ability to spot stock frauds in the early stages.

[stevo1]

Business Spectator reports that sunday evening ASIC has banned ALL short selling covered and naked from Monday for at least 30 days

[redzone]

Business Spectator reports that sunday evening ASIC has banned ALL short selling covered and naked from Monday for at least 30 days

My advice for what it is worth is to stay away from the markets.....there is close to 7 trillion dollars with of crap floating around these doggy investment banks around the world....the US Government are cleaning up with 1 Trillion $s.....doesnt seem quite the fix to me ....all looks like a VIRTUAL market ...fantasy stuff....maybe the largest bear trap the world has seen.

[redzone]

the way I believe the US government is paying for this attempted bail out......the market starts to crash on Thursday....over the day someone started to take large forward bets on the US markets heading north....massive volumes were going through the finacial stocks (in some cases half a billion were traded thursday)...late in the day a whisper spread over CNBC that a deal was being put together....the markets rally....again on Friday with more yap that a deal was being put together and blow and behold a stop was put on all short selling of finacial companies....well the markets can only go one way....the question is who was placing the huge bets....well my bet would be the FED....THEIR LITTLE SECERT GROUP that was set up in 87 to prevent the markets from being destroyed and I believe have been active on several occasions since then.
The stock will PROBABLY sold over the next month or so to help fund the bail out at a huge profit....about the time they will allow eveyone to short again.....and I wonder who would have placed the first bets.... we then all start again....welcome to the US. stock market

[STRAT]

the way I believe the US government is paying for this attempted bail out......the market starts to crash on Thursday....over the day someone started to take large forward bets on the US markets heading north....massive volumes were going through the finacial stocks (in some cases half a billion were traded thursday)...late in the day a whisper spread over CNBC that a deal was being put together....the markets rally....again on Friday with more yap that a deal was being put together and blow and behold a stop was put on all short selling of finacial companies....well the markets can only go one way....the question is who was placing the huge bets....well my bet would be the FED....THEIR LITTLE SECERT GROUP that was set up in 87 to prevent the markets from being destroyed and I believe have been active on several occasions since then.
The stock will PROBABLY sold over the next month or so to help fund the bail out at a huge profit....about the time they will allow eveyone to short again.....and I wonder who would have placed the first bets.... we then all start again....welcome to the US. stock marketHaha,
I like the way you think redzone.:D

[redzone]

strat its the way it is

[STRAT]

strat its the way it isYou will get no argument on that from me;)