Month: September 2008

Posted on

Article: The Business Ethics of Short Selling and Naked Short Selling

Article - Academic

The Business Ethics of Short Selling and Naked Short Selling

James J.  Angel, Douglas M. McCabe

Journal of Business Ethics, 30 September 2008

The controversy over short selling has continued unabated from the introduction of modern equity trading in Amsterdam in 1610 to the present day. Nevertheless, the business ethics literature has not really addressed short selling. Short sellers not only profit from the misery of others, they also create it through their selling activities. However, they also provide a socially useful service by making prices better reflect true values, protecting other investors from purchasing overpriced securities.

Paywall access to article.

Posted on

Web: Naked in Wonderland

Web

Naked in Wonderland

Patrick Byrne

Forbes via Wayback, 23 September 2008

Recent concerns about short-selling have culminated in a regulatory flurry of emergency orders and amendments. What should be of concern, however, is not short-selling per se: As its devotees frequently remind us, short-selling is a vital and legitimate market activity. What should be of concern are specific types of stock manipulation that cloak themselves within legitimate activities such as shorting, and which, in one way or another, rely upon loopholes in our nation’s system of stock settlement.

“Settlement” is the moment in a stock trade when the seller receives money and the buyer receives stock. Our settlement system has gaping loopholes that allow sellers to sell shares but fail to deliver them. In such cases, the system creates IOUs for shares, and lets those “stock IOUs” circulate in the expectation the seller will soon correct his error. This is harmless–as long as the IOUs are inadvertent, temporary and few.

Access archived page.

Posted on

Article: Calling Out the Culprits Who Caused the Crisis

Article - Media

Calling Out the Culprits Who Caused the Crisis

Eric D. Hovde

Washington Post via Wayback, 21 September 2008

Looking for someone to blame for the shambles in U.S. financial markets? As someone who owns both an investment bank and commercial banks, and also runs a hedge fund, I have sat front and center and watched as this mess unfolded. And in my view, there’s no need to look beyond Wall Street — and the halls of power in Washington. The former has created the nightmare by chasing obscene profits, and the latter have allowed it to spread by not practicing the oversight that is the federal government’s responsibility.

Access archived page.

Posted on

Web: The SEC May Be The Country’s Worst Enemy

Web

The SEC May Be The Country’s Worst Enemy

Bob O’Brien

Sanity Check via Wayback, 19 September 2008

Government has now, with the stroke of a pen, altered the way the markets work. Which again, is fine, if short selling goes the way of the buggy whip, for good. But that is unlikely. So what it has done is prepare the stage for volatility unlike any seen in the markets ever before. Wildly high highs, to be followed by devastating lows.

I’m not so concerned about the wildly high highs. It’s when the rule expires that I have a problem with. And it is the absence of coherence in the reasoning that I have a huge problem with.

Access archived page.

Posted on

Article: SEC and FSA Take Actions Against Short Selling

Article - Media

SEC and FSA Take Actions Against Short Selling

Cary J. Meer, Christina E. Anzuoni, Manjinder Cacacie, Kay A. Gordon, Mark D. Perlow

K&L Gates, 19 September 2008

On September 17 and 18, 2008, in a series of emergency measures, the Securities and Exchange Commission (“SEC”) adopted two new rules, issued two orders (including a temporary ban on short sales in financial securities), amended Regulation SHO and Rule 10b-18, and announced enforcement initiatives aimed at preventing “naked” short selling and compelling disclosure of short positions. In the view of the SEC, but not of all observers, “naked” short selling and other manipulative trading practices have contributed to the recent turmoil in the markets and sudden declines in securities prices, particularly in the financial sector. “Naked” short selling is the practice of selling a security short without having borrowed the security.

Read full article.

Posted on

Article: Are Short Sellers to Blame for the Financial Crisis?

Article - Media

Are Short Sellers to Blame for the Financial Crisis?

Bill Saporito

TIME, 18 September 2008

“It was sad to see Merrill go down as well,” said the voice from inside Lehman Brothers this week as he pondered his own future. “But at least they screwed the shorts. That was good to see.”

It was also, at least in the minds of many angry investment bank CEOs, a long time coming. In the months leading up to the current market chaos, the short sellers have been on the prowl. But now the witch hunt has begun. The shorts nailed Lehman and Bear Stearns by betting that their shares would continue to fall. And now they have Morgan Stanley and Goldman Sachs in their sights, sparking speculation that the last two remaining go-it-alone investment banking giants may have to find a deep-pocketed commercial bank to partner up with.

Read full article.

Posted on

Article: New SEC Rules Target ‘Naked’ Short-Selling

Article - Media

New SEC Rules Target ‘Naked’ Short-Selling

Marcy Gordon

Associated Press, 18 September 2008

Federal regulators yesterday took measures aimed at reining in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers and that some feared could be used against other vulnerable companies in a turbulent market.

The Securities and Exchange Commission adopted rules it said would provide permanent protections against abusive “naked” short-selling. Unlike the SEC’s temporary emergency ban this summer covering naked short-selling in the stocks of mortgage finance giants Fannie Mae and Freddie Mac and 17 large investment banks, the new rules apply to trading in the broader market.

Read full article.

Posted on

Article: SEC reins in ‘naked’ short selling, will check recent trades

Article - Media

SEC reins in ‘naked’ short selling, will check recent trades

Adam Shell

abc, 18 September 2008

Reacting to concerns that many financial stocks were losing value at an alarming rate due to aggressive bets by short sellers who profit when prices fall, federal regulators on Wednesday acted to stem the abusive practice known as “naked short selling.”

In an ordinary short sale, a short seller borrows stock and sells it, with the hope of buying it back later at a lower price to replace the borrowed shares.

Read full article.

Posted on

Paper: The Counterfeiting of Shares of Fannie Mae and Freddie Mac

Paper

The Counterfeiting of Shares of Fannie Mae and Freddie Mac: Where are Our Regulators and Who are They Protecting?

17 September 2008

Fannie Mae and Freddie Mac are publicly traded Government Sponsored Enterprises (―GSEs‖), a quasi – partnership between the private sector and the government. The shares of the GSEs trading in the public markets have been counterfeited and deliberately manipulated. This is not rocket science; known ownership of the GSEs shares exceeded the number of shares that were available. Counterfeiting shares of the GSEs caused their stock prices to collapse. The regulators turned a blind eye to the takedown, encouraged it or were not effective enough to recognize it and enforce the laws against market manipulation that have existed since the 1930s. The industry and the regulators have little room for a plausible deniability claim that they did not know what was occurring in the trading of the GSEs.

PDF (33 pages): The Counterfeiting of Shares of Fannie Mae and Freddie Mac: Where are Our Regulators and Who are They Protecting?

Posted on

Release: SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses

Release

SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses

SEC, 17 September 2008

he Securities and Exchange Commission today took several coordinated actions to strengthen investor protections against “naked” short selling. The Commission’s actions will apply to the securities of all public companies, including all companies in the financial sector. The actions are effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.

Read full release.

Posted on

Article: Banking crisis: Regulators look to curb naked ambition of the short sellers

Article - Media

Banking crisis: Regulators look to curb naked ambition of the short sellers

Simon Bowers

The Guardian, 17 September 2008

Short sellers in New York and London are facing tough new regulations as market officials attempt to curb what they see as “abusive” attacks on the proper functioning of stock markets — particularly the pricing of banking and financial stocks.

The US Securities and Exchange Commission will tomorrow impose new rules designed to end “price manipulating” through aggressive short selling. Earlier this week the chancellor, Alistair Darling, signalled the Financial Services Authority was also looking at closer policing of certain short-selling activities.

Read full article.

 

Posted on

Article: SEC Races Against Short Sellers

Article - Media

SEC Races Against Short Sellers

Julie Satow

The Sun, 16 September 2008

In an attempt to stanch the bloodletting on Wall Street, the Securities and Exchange Commission will rush to institute new rules as soon as this week to curb abusive short selling of stocks.

The rules — which are far less sweeping than restrictions the agency temporarily instituted in July on shorting shares of 19 financial firms — will make it fraudulent for traders to mislead brokers about whether they have located a stock they intend to short, and will no longer allow options traders to bet against a stock without borrowing it first. It will also require brokers to close out their short positions sooner.

Read full article.

Posted on

Article: A good summer for David Einhorn

Article - Media

A good summer for David Einhorn

Tracy Alloway

Financial Times, 15 September 2008

The outspoken hedgie David Einhorn would have made a killing from his bets against Lehman Bros this summer. He first announced his position in April, when Lehman’s share price was at about $40, saying he had questions about the company’s balance sheet. Lehman stock is now under $4 — giving Einhorn’s Greenlight Capital a 90 per cent return according to some estimates.

Could the role of short-sellers like Einhorn give fresh fodder to the push for a ban on certain forms of short-selling then?

Read full article.

THE DOLLAR HAS NO INTRINSIC VALUE : DO YOUR ASSETS?