Month: March 2005

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Article: Short Selling, Death Spiral Convertibles, and the Profitability of Stock Manipulation

Article - Academic

Short Selling, Death Spiral Convertibles, and the Profitability of Stock Manipulation

John D. Finnerty

Fordham University, 31 March 2005

The SEC recently adopted Regulation SHO to tighten restrictions on short selling and curb abusive short sales, including naked shorting masquerading as routine fails to deliver. This paper models market equilibrium when short selling is permitted and contrasts the equilibrium with and without manipulators among the short sellers. I explain how naked short selling can routinely occur within the securities clearing system in the United States and characterize its potentially severe market impact. I show how a recent securities innovation called floating-price convertible securities can resolve the unraveling problem and enable manipulative short selling to intensify.

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Release: DTCC Announces Effort to Correct Record on Its Stock Borrow Program & Naked Short Selling

Release

DTCC Announces Effort to Correct Record on Its Stock Borrow Program & Naked Short Selling

Business Wire, 30 March 2005

The Depository Trust & Clearing Corporation (DTCC) has provided its bank and broker customers with a detailed explanation of its Stock Borrow program and the issue of naked short selling in an effort counter a widespread campaign of distortions and misleading information.

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Article: Who’s Behind Naked Shorting?

Article - Media

Who’s Behind Naked Shorting?

Karl Thiel

The Motley Fool, 30 March 2005

The subject of naked short selling has gained some momentum with the introduction of Reg SHO early this year and a rising tide of complaint from companies like Overstock.com (NASDAQ:OSTK) and others. But in addition to this general attention, 12 separate lawsuits have accused the DTCC itself of engineering naked short-selling schemes. Nine of these, according to Thompson, have been dismissed or withdrawn, while three are still pending.

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Article: Naked shorting: The curious incident of the shares that didn’t exist

Article - Media

Naked shorting: The curious incident of the shares that didn’t exist

Peter Koh, Helen Avery

EuroMoney, 27 March 2005

Shareholders and executives in some of the US’s smallest listed companies believe their share prices have been forced down by illegal naked shorting. This has led to a number of lawsuits, claiming unscrupulous behaviour by brokers and market-makers exploiting loopholes in the central clearing system. Those implicated dismiss the allegations as rubbish. What’s going on?

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Article: The Naked Truth on Illegal Shorting

Article - Media

The Naked Truth on Illegal Shorting

Karl Thiel

The Motley Fool cited  by RGM Communications via Wayback, 24 March 2005

It’s amazing how the word “naked” can liven up a discussion. Take naked short selling, for instance. The addition of this saucy little word turns the mundane act of borrowing and selling shares of stock in hopes of buying them back later at a lower price into a raging controversy fraught with conspiracy, secret identities, public recriminations, foreign intrigue, sports team owners, and now some of the top regulators in the land.

How can one word cause so much trouble? While legal short sellers must borrow the shares they sell, naked short sellers sell shares of stock they haven’t borrowed, have no intention of borrowing, and that may not even exist. Not surprisingly, this activity is illegal and has been since the Securities and Exchange Act of 1934. But for a number of reasons, regulators have overlooked it in the past.

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