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Article: Short selling in initial public offerings

Article - Academic

Short selling in initial public offerings

Amy K. Edwards, Kathleen Weiss Hanley

Journal of Financial Economics, 1 October 2010

Short sale constraints in the aftermarket of initial public offerings (IPOs) are often used to explain short-term underpricing that is subsequently reversed. This paper shows that short selling is integral to aftermarket trading and is higher in IPOs with greater underpricing. Perceived restrictions on borrowing shares are not systematically circumvented by “naked” short selling. Short sellers, on average, do not appear to earn abnormal profits in the near term and our findings are not driven by market makers. Short selling in IPOs is not as constrained as suggested by the literature, implying that other factors may be responsible for underpricing.

Paywall access to article.

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Paper: Fails to Deliver: The Price Impact of Naked Short Sales

Paper

Fails to Deliver: The Price Impact of Naked Short Sales

Elizabeth Stone

Stanford University, 27 September 2010

The effect of naked short selling on asset prices and trading dynamics is a prominent topic of debate among market participants, regulators, and the popular press. This paper evaluates the validity of the claim that naked shorting leads to negative excess returns by creating additional selling pressure. While data on naked short sales is not publicly available, Securities Exchange Commission data on failures to deliver is a strong proxy. Fail to deliver data for 2004 covers a period during which the prevalence of naked short selling was not public knowledge since neither the fail to deliver data nor the Regulation SHO List were publicly available. In excluding information and regulation effects, the analysis presented in this paper isolates potential microstructure price effects.

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Article: Morgan Stanley Challenges “ETF Collapse” Theory

Article - Media

Morgan Stanley Challenges “ETF Collapse” Theory

ETF, 24 September 2010

Matt Tagliani, head of European and Asian ETF product at Morgan Stanley in London, has challenged the theory of an ETF collapse caused by the lending and short sale of ETFs.

The theory, promulgated by Bogan Associates, LLC in a 15 September white paper entitled “Can an ETF Collapse?” was publicised in a subsequent FT Alphaville blog and then featured as the topic of a CNBC strategy session on Wednesday this week.

Read full article.

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Article: Chinese coal company’s share placement produces interesting collection of investors

Article - Media

Chinese coal company’s share placement produces interesting collection of investors

Chris Carey

sharesleuth, 13 September 2010

Sharesleuth took a closer look at the registration statement covering the resale of those shares, and found that no fewer than eight people who participated in the placement have been the subject of Securities and Exchange Commission actions or criminal prosecutions.

The list includes at least four people who were directly or indirectly linked to stock-manipulation schemes. Several other investors were previously involved in a small cluster of U.S. companies whose placements were manipulated by a ring of boiler room brokerages in the 1990s.

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Article: Naked Shorting Will Cause U.S. Exchange Exodus

Article - Media

Naked Shorting Will Cause U.S. Exchange Exodus

Bud Burrell

Financial Wire, 5 August 2010

This week, an important online news service released an article that should send shockwaves into our public markets. In very curt form, the article chronicles the many abuses of U.S. public companies by short selling manipulators, particularly through naked short selling and regular and derivative based synthetic shorting. By implication, the article recites the sheer embarrassing ineffectiveness of our regulators, who are engaged in a pattern of systematic conflicts of interest with revolving doors that are a major disgrace to our own government.

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Article: Wall Street’s Big Win

Article - Media

Wall Street’s Big Win

Matt Taibbi

Rolling Stone, 4 August 2010

Cue the credits: the era of financial thuggery is officially over. Three hellish years of panic, all done and gone – the mass bankruptcies, midnight bailouts, shotgun mergers of dying megabanks, high-stakes SEC investigations, all capped by a legislative orgy in which industry lobbyists hurled more than $600 million at Congress. It all supposedly came to an end one Wednesday morning a few weeks back, when President Obama, flanked by hundreds of party flacks and congressional bigwigs, stepped up to the lectern at an extravagant ceremony to sign into law his sweeping new bill to clean up Wall Street.

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Article: Notes on David Einhorn: The Predator in a Cute T-Shirt

Article - Media

Notes on David Einhorn: The Predator in a Cute T-Shirt

Mark Mitchell

DeepCapture, 10 June 2010

I received an email a while back from Jim Brickman, a crony of short selling hedge fund manager David Einhorn, demanding that I post the Securities and Exchange Commission inspector general’s report on the commission’s investigation of Allied Capital. According to Brickman, the report proves that Einhorn was right about Allied being a massive fraud. Moreover, says Brickman, the report definitively establishes that Einhorn did not seek to drive down Allied’s stock price. The report, which I gladly post below, does nothing of the sort. I will discuss the report in further detail, but first a little history.

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Article: Germany bans naked short-selling

Article - Media

Germany bans naked short-selling

Holder Hansen, Andreas Rinke

Reuters, 18 May 2010

Germany, in an attack on the financial speculation on which it blames much of the euro zone’s debt crisis, on Tuesday announced a ban on some high-risk bets that prices of bonds and stocks will fall.

Analysts, however, were skeptical that Germany’s surprise move to ban some trades in a strategy known as naked short selling could be effective in taming market volatility, with one saying it suggested “desperation.”

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Fined: Deutsche Bank Fined by FINRA

Fined

FINRA Fines Deutsche Bank Securities, National Financial Services a Total of $925,000 for Systemic Short Sale Violations

13 May 2010

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined two broker-dealers a total of $925,000 for executing numerous short sale orders in violation of Regulation SHO and for related supervisory violations. FINRA fined New York’s Deutsche Bank Securities $575,000 and Boston’s National Financial Services (NFS) $350,000.

Read full report.

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Article: Some lawmakers also shorted stocks, congressional records show

Article - Media

Some lawmakers also shorted stocks, congressional records show

Robert O’Harrow Jr., Dan Keating

The Washington Post, 5 May 2010

As Congress criticized Wall Street for the proliferation of risky derivatives investments and short-selling practices in recent years, some lawmakers privately made highly speculative investments in derivatives funds that sometimes aimed to profit from a decline in the overall performance of the stock market or Treasury bonds, congressional financial disclosure forms show.

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