Should shorting be suspended/banned?

Well, for what it's worth....I have been watching four stocks that I had positions in very closely over the last few weeks...As soon as I saw what I describe below I closed them....When you see this sort of thing happening there's nothing you can do about it. You either get out and sit on the sidelines and take a small loss...or you sit and watch painfully....

These stocks have all had the same thing done to them....

Their prices have been deliberately driven down by platforming the ask with huge sell orders. 1 million to 3 million.....on stocks that have an average daily trading volume of 6 - 10 million.....

These orders are just far enough away from the action to never get filled. If they get close to that point they are quickly removed and placed on again at the back of the cue.

This effectively means panicked sellers, wanting to close out their positions, have to jump over them and place their orders ahead on the ask otherwise they never get closed out...As soon as they do this guess what....the big orders move down behind them.....

More and more sellers leap frog over these big orders in a slow, progressive downslide......until the selling slows down.....The big orders on the sell dissappear and the shares have changed hands at very cheap prices...

Then big orders platform the bid and the reverse happens......that's when I bought back my positions....

Now, this may not exactly be short selling......because those big orders were never traded but the process of naked shorts gives market manipulators the tools to push down prices for their own purposes.....They effectively use shares that don't exist to destroy legitimate people's lives.....

I have nothing against covered shorts......but the above is nothing short (pardon the pun) of criminal behaviour......

The title of this thread should be changed to naked shorts.....it will be very interesting to see what happens on Monday.....

wayneL said:

Some back tracking already:

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aJ0LXWUmmLBg

D'oh!!!!!!!

MUPPETS .... IDIOTS

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What I want to know is what will they do once they realise banning short selling hasn't stopped prices going down and that there are now no short covering rallies to help support prices.

Remember prices can fall because there are no buyers (something that has been forgotten lately imo).

I see shorting of financial Instruments has been banned in Uk till January.Has anyone read the book Fiasco,about what happened in the early 90'S?The subprime derivatives market problem is almost exactly the same-and no regulation was put in place after that.Some derivatives & swaps are so complex that few people in the world have the skill to write ,interpret or unravel them.Whatever is not illegal will be pushed to the max,its up to the regulators to restrict what they don't like,but they will always be playing catch up anyway,brilliant minds will be working out new ways to get around them.Its interesting that the U.S has rapidly become a socialist state by useing government money to support private enterprise,when Globalization theory tells us businesses should stand or fall on their own competativeness without tariffs or govt.support.
I think naked shorting is one of the worst crimes committed by the big boys.IMHO

cordelia said:

......but the above is nothing short (pardon the pun) of criminal behaviour......

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OMG this is truly getting ridiculous.

nomore4s said:

What I want to know is what will they do once they realise banning short selling hasn't stopped prices going down and that there are now no short covering rallies to help support prices.

Remember prices can fall because there are no buyers (something that has been forgotten lately imo).

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Exactly, what people forget is that people are not going to short a company that is not a basket case. Stocks such as Lehman brothers, AIG etc were worth nothing

cordelia said:

As soon as I saw what I describe below I closed them....When you see this sort of thing happening there's nothing you can do about it. You either get out and sit on the sidelines and take a small loss...or you sit and watch painfully....

.....The big orders on the sell dissappear and the shares have changed hands at very cheap prices...

Then big orders platform the bid and the reverse happens......that's when I bought back my positions....

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I don't get it ... sounds like f'n great trading to me, well done Cordelia!

mit said:

Exactly, what people forget is that people are not going to short a company that is not a basket case. Stocks such as Lehman brothers, AIG etc were worth nothing

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Zactly!

So, you lot all complaining about short selling ....
When you buy shares, do you do a bit of research (TA or FA) to find one you think is going to go up? Or do you buy shares that you think are going to fall? Stupid question, I know, but I am trying to say this really slowly and carefully...

So, do you think those wanting to short sell shares might do a bit of research too? Maybe even more than buyers do, 'cause when you short sell your risk is unlimited! When you buy all you can lose is the money you bought the shares with, if the shares fall to zero. When you short sell a share at whatever, say $20, what do you think happens to your position if the share goes to $50? $80 $100 ? Like the kids say, do the math! (Are the kids still saying that?)

So, if you are going to be a short seller you need to do your research. Do what Cordelia did above, coat-tail these guys, make some money! That's what we do this stuff for, right?

p.s. Watch out for next bout of global turmoil and sharemarket slides - there will be no short-covering rallies to help you permabulls out next time!

Maybe next time we can ban stop loss selling?

nomore4s said:

What I want to know is what will they do once they realise banning short selling hasn't stopped prices going down and that there are now no short covering rallies to help support prices.

Remember prices can fall because there are no buyers (something that has been forgotten lately imo).

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Fantastic post!

Or prices fall because there are a heap of sellers (not short sellers). Its not against the law to sell you know. Every time every one of you has sold, it creates downward pressure on prices (the amount of that pressure depends on the size of the amount being sold).

Some of the people in this thread seem to think it should be illegal for a stock price to go anywhere but up...

wayneL said:

Whiskers,

The short selling rogues is a massive straw man. Sure there were institutional short sellers, but only after doing their due diligence and deciding that banks had nuked their own value. That's not rogue behaviour, that's just legitimate investing.

The influence of the illegal naked shorts is marginal at best.

You will have to wait and see about the Ma & Pa stuff, but mark my words.

So how am I more selfish than you? After all you aparently rely heavily on shorting and profited from the wild swings both ways... thriving on the volatility. I've only been accumulating long positions lately.




Oh please!

I have only ever played by the accepted rules of the game. I only take markets, I don't make them. I am at the mercy of the market, I live or die by the choices I make, I don't move the goal posts when I'm losing. I don't change the rules.

Ergo, there is no lack of morality on my part. Short selling (covered) is legal, moral and necessary for proper market function and actually supports share prices as I and others have detailed a thousand times.

Most short positions are maintained by option houses and MMs to be delta neutral the market and are totally benign.

The rules will not stop institutions shorting the market anyway as they can still short via SSFs (single stock futures) and synthetic shorts via options. It's a piece of piss. Nothing will change except the perception that gu'mint is doing something and tinpot CFD traders won't be able to join the fun.

The immoral and stupid thing, is to blame short sellers for tanking share values. It's scapegoatism. Short sellers are not to blame for banks toxic activities which destroyed their own market value. They themselves are to blame.

But the truly toxic thing is banning ALL short selling. It is morally repugnant and anyone who supports it does not understand markets. Those that still support the ban after having it explained are just plain stupid and short sighted.

I can't go into LTSB/HBOS too much, but watch this space.

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Great post. It is a gigantic straw man argument but unfortunately the average shmo doesn't know any better and will probably believe it. Here is a link to an interview on CNBC in which Doug Kass of seabreeze partners debunks the theory that naked short selling is repsonsible for selling in financial shares. This is the key point for me:

Fails to deliver from naked short selling account for only 1% of the daily volume according to the Depository Trust and Clearing Corporation…. out of an average of 54 million new transactions processed every day, less than 20,000 are failed.

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I've changed my mind ,I think long and short positions should be banned:https://www.aussiestockforums.com/forums/images/smilies/tongue.gif

Trembling Hand said:

OMG this is truly getting ridiculous.

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Yes. Looks like the spin doctors, lobbyists and media and have done there job and the sheep and the gullible have fallen for it again. Diverting attention from the real situation or causes is what they are good at.

The root cause of current events really has very little to do with short selling per se.

The 'Houses of Cards' have experienced a series of events that have exposed their weaknesses, including the resultant consequences, for all to see.

Go back 12 to 18 months and relook at the series of events that were unfolding and people will see that this was not caused by short selling.

Consider the level of denial that was being espoused by major financial institutions around the world, as to their level of exposure and the potential impact or lack thereof, and now look at the reality of the situation.

Now they want Governments to bail them out and the taxpayer will end up bearing the cost, but fundamental issues that caused this will end up being swept under the carpet once again.

Anyone who thinks that banning short selling, especially any form of short selling, regardless of the market (e.g., stocks, commodites, derivatives, etc.) has very little understanding of market mechanics or why they exist.

Legislation, as a knee jerk reaction, with regard to short selling that fails to consider commercial and market realities could potentially create more problems than it solves.

Cheers.

Mike Trader said:

I've changed my mind ,I think long and short positions should be banned:https://www.aussiestockforums.com/forums/images/smilies/tongue.gif

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Yeah. No more "Long" or "Short" positions. To reduce volatility, the only legal trades should be "Medium" positions.. and any shares so purchased must be held for a minimum 12 months before resale or $US1,000,000 fine applies!!

There. That sounds reasonable doesn't it?

LOL


aj

Some poeple don't appear to know the difference between naked and covered shorts. They are completely different...clearly you haven't even read what the ASX has decided to do and are commenting based on second hand knowledge or more than likely complete ignorance

Here you go...straight from the horse's mouth....The ASX is banning naked short selling not all short selling.....

http://www.asx.com.au/about/pdf/mr_190908_abolition_naked_short_selling.pdf

and you can learn about it here

http://en.wikipedia.org/wiki/Naked_short_selling

i have read most of the posts in this thread and contributed.

with my lame-assed lack of knowledge, i am puzzled about how this very sudden development will:

a) affect DMA CFD providers and users.

b) (at a slight tangent), how the massive currents of Futures trading, may impact on market direction. (wont the short money go their?)

both here and OS.

seems like these effects, along with the high leverage, would move markets far more than short sellers of ordinary stock.

I am leaving aside ordinary sellers!

please forgive my ignorance ( i did vote against banning short selling)

and which type of short selling would that be? That's the whole point......I can't vote because I don't agree with banning covered shorts but I do agree with what the ASX is doing...banning naked shorts......

everyone seems to have missed that point....

cordelia said:

and which type of short selling would that be? That's the whole point......I can't vote because I don't agree with banning covered shorts but I do agree with what the ASX is doing...banning naked shorts......

everyone seems to have missed that point....

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I don't think everyone has missed that point. I haven't seen anyone object to banning naked short selling. However claims that naked shorts are responsiblefor large downward movements in stock prices are unfounded. As stated above, less than 1% of daily transaction volumes of short sales in the US fail to deliver.

dhukka said:

I don't think everyone has missed that point. I haven't seen anyone object to banning naked short selling. However claims that naked shorts are responsiblefor large downward movements in stock prices are unfounded. As stated above, less than 1% of daily transaction volumes of short sales in the US fail to deliver.

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I'm sorry but that doesn't make sense.....You state " I haven't seen anyone object to banning naked short selling" ,.....but that is what the ASX is doing and plenty of people on this thread are complaining about banning short selling....If they are not objecting to banning naked short selling what are they objecting to?


Clearly they don't understand the difference....

cordelia said:

I'm sorry but that doesn't make sense.....You state " I haven't seen anyone object to banning naked short selling" ,.....but that is what the ASX is doing and plenty of people on this thread are complaining about banning short selling....If they are not objecting to banning naked short selling what are they objecting to?


Clearly they don't understand the difference....

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So you just proved my point. People are not objecting to naked short selling, they are objecting to a ban on short selling. But is everyone objecting to short selling on ASX listed companies or are they, as the opening posts suggests commenting on short selling worldwide? You are the one who has confined the context to the ASX. In case you hadn't noticed, the UK and US have banned any type of short selling on selected stocks. I think some people are objecting to the ban on short selling in those countries and yes some people do seem to be confused about the ban in Australia being only confined to naked shorts.

I was, and am, aware that the ban only applies to naked shorters. My posts, though, have been driven by what I am really objecting to, which is the scapegoating of short sellers (clothed or otherwise ) for the slide in global equity markets. All this sudden government action is not addressing the real issues and is mere window dressing, chasing after a soft target, trumpeted for maximum publicity ("See, we are doing something!"). Much of this turmoil orginates in the US, where lax prudential regulation of financial institutions has allowed a ballooning of unsustainable debt, threatening not just global liquidity but, worse, much worse, global solvency. That is what we should be really scared of, not a few hedge funds making some bucks from the fall (thank goodness someone is making some money from it and will be in a position to buy).

What gets on my goat (goat, get it?...sorry) even more, though, is the effect the scapegoating has on each individual trader and investor. By seeking out parties to blame we are misdirecting our attention from what really matters, from what we really need to understand, and trying to benefit from it, which is why we do all this stuff, isn't it?

Cordelia, your post regarding how you got out of 4 positions and in at better prices is an example of what we all need to address. (This, of course, is just IMHO, far be it from me to tell people what they should be doing ... but if I am trading with the goal to make money then understanding what is, and acting on what is, is going to help with my goal).

Further, Cordelia, in you excellent description of how you benefited from the falling prices I think it is fair to say that you thought that the manipulation you witnessed was wrong, unethical, whatever (I wont try to put words in your mouth about what you thought, but I think I am on the right general track). The point I would like to make is that manipulation of prices in the market is attempted quite often, whether by putting in 'spoof' prices, hitting bids at a certain time to give the impression of an offered market when you really want to be buying large amounts, buying into the close to get the EOD traders interested ...etc. (ps. All such activities are accompanied by risk, they are not guaranteed to move the price in your desired direction). Indeed, the loud trumpeting of the bans on mnaked short selling from the authorities was a from of manipulation (to get prices rallying) itself. If that was what they wanted to achieve, mission accomplished (at least for now).

Now, whether such manipulation is wrong or right ... the point is it is happening, and it is natural (ever haggled for anything?), my job is to try and recognise it and turn it to my advantage. Even better if I can recognise when this manipulation is indicative of much large capital flows behind it, so seeing the driver of the next 'trend'.

Hope this all makes sense.