Article: Another Wirecard? Invoices Backing Greensill-Issued Bonds Never Existed, Administrator Finds

Article - Academic, Publications

Another Wirecard? Invoices Backing Greensill-Issued Bonds Never Existed, Administrator Finds

TYLER DURDEN, 02 April 2021

As the collapse of Greensill Capital threatens to ensnare former PM David Cameron in a humiliating public probe, the Financial Times on Thursday reported some disturbing new details that appear to suggest Greensill wasn’t merely reckless, but potentially guilty of a Wirecard-style fraud.

According to the FT, Greensil’s administrator – who is responsible for winding down whatever assets remain and managing creditors’ claims -“has failed to verify invoices underpinning loans to Sanjeev Gupta, after companies listed on the documents denied that they had ever done business with the metals magnate.”

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Article: Five ways Biden could crack down on dirty money and financial secrecy

Article - Academic, Publications

Five ways Biden could crack down on dirty money and financial secrecy

Brenda Medina, 01 April 2021

Early rhetoric from the Biden administration has encouraged anti-corruption advocates that the new president’s tenure in the White House may mark a turning point in the fight against dirty money and tax haven abuse — two overlapping problems made worse by a veil of secrecy that shields vast sums of money from tax collectors and law enforcement authorities.

“We will crack down on tax havens and illicit financing that contribute to income inequality, fund terrorism, and generate pernicious foreign influence,” the administration’s Interim National Security Strategic Guidance, released last month, says, identifying the fight against global corruption as a top security priority. The strategy mirrors promises Joe Biden made during his candidacy.

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Article: Turkey fines firms over short selling irregularities

Article - Academic, Publications

Turkey fines firms over short selling irregularities

Reuters, 01 April 2021

Turkey fined 10 securities firms for up to 7.8 million lira ($1 million) in relation to irregularities in short-selling transactions, the country’s Capital Markets Board said in its weekly bulletin on Thursday.

Fines of various amounts were imposed on firms including Merrill Lynch International, JP Morgan Securities, Goldman Sachs International, Credit Suisse Securities Europe and Barclays Capital Securities, the statement said.

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Article: GameStop Takes $6 Billion Round Trip as Results Shrugged Off

Article - Academic, Publications

GameStop Takes $6 Billion Round Trip as Results Shrugged Off

Bailey Lipschultz,27 March 2021

GameStop Corp. is ending the week where it started, after an earnings-related selloff was quickly reversed, with retail investors refusing to let go of their commitment to the stock.

Investors were quick to get over GameStop’s 12th consecutive quarter of slowing sales and management’s decision to not take questions on its earnings call on Tuesday, despite warnings from most Wall Street analysts. After see-sawing to as low as $118.62, the stock was trading near last week’s closing level on Friday. That created a more than $6.4 billion swing in market value from Monday’s intraday high to a bottom on Wednesday.

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Article: What To Know About Short-Seller Risks During Pandemic

Article - Academic

What To Know About Short-Seller Risks During Pandemic

Avi Weitzman, Barry Goldsmith and Jonathan Seibald

Law360, 3 June 2020

As the world struggles to cope with the COVID-19 pandemic, and volatile markets are rattled by the latest virus and economic news, publicly traded companies are increasingly susceptible to fraudulent short-seller attacks. While legitimate short selling plays an important and well-recognized role in the public markets, there are a few who have abused and misused short selling to manipulate the price of public company stock.

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Academic: Joshua Mitts, Ph.D

Academic, Article - Academic

 Joshua Mitts, Ph.D is an Associate Professor of Law at Columbia Law School. Joshua Mitts, who joined the faculty in 2017, uses advanced data science for his research on corporate and securities law. His primary focus is on information disclosure in capital markets, consumer financial protection, and related topics in law and finance. Mitts employs empirical methods, including statistical analysis and machine learning, for his research on short-selling, informed trading on cybersecurity breaches, information leakage and hedge-fund activism, insider trading on corporate disclosure, and information transmission in financial markets.

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Article: 17 CFR § 242.204 – Close-out requirement.

Article - Academic, Publications

17 CFR § 242.204 – Close-out requirement.

Legal Information Institute, 19 July 2018

A participant of a registered clearing agency must deliver securities to a registered clearing agency for clearance and settlement on a long or short sale in any equity security by settlement date, or if a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in any equity security for a long or short sale transaction in that equity security, the participant shall, by no later than the beginning of regular trading hours on the settlement day following the settlement date, immediately close out its fail to deliver position by borrowing or purchasing securities of like kind and quantity; Provided, however: Continue reading “Article: 17 CFR § 242.204 – Close-out requirement.”

Article: Fails-to-deliver, short selling, and market quality

Article - Academic

Fails-to-deliver, short selling, and market quality

Veljko Fotak, Vikas Raman, Pradeep K. Yadav

Journal of Financial Economics, 1 December 2014

We investigate the aggregate market quality impact of equity shares that fail to deliver (hereafter “FTDs”). For a sample of 1,492 NYSE stocks over a 42-month period from 2005 to 2008, greater FTDs lead to higher liquidity and pricing efficiency, and their impact is similar to our estimate of delivered short sales. Furthermore, during the operative period of a Security and Exchange Commission (SEC) order mandating stock borrowing prior to short sales, the securities affected display relatively lower liquidity and higher pricing errors. Finally, we do not find any evidence that FTDs caused price distortions or the failure of financial firms during the 2008 financial crisis.

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Article: Which short-selling regulation is the least damaging to market efficiency? Evidence from Europe

Article - Academic

Which short-selling regulation is the least damaging to market efficiency? Evidence from Europe

Oscar Bernal, Astrid Herinckx, Ariane Szafarz

International Review of Law and Economics, 1 March 2014

Exploiting cross-sectional and time-series variations in European regulations during the July 2008–June 2009 period, we show that: (1) prohibition on covered short selling raises bid-ask spread and reduces trading volume, (2) prohibition on naked short selling raises both volatility and bid-ask spread, (3) disclosure requirements raise volatility and reduce trading volume, and (4) no regulation is effective against price decline. Overall, all short-sale regulations harm market efficiency. However, naked short-selling prohibition is the only regulation that leaves volumes unchanged while addressing the failure to deliver. Therefore, we argue that this is the least damaging to market efficiency.

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Article: Naked Short Selling and the Market Impact of Fails-to-Deliver Evidence from the Trading of Real Estate Investment Trusts

Article - Academic

Naked Short Selling and the Market Impact of Fails-to-Deliver: Evidence from the Trading of Real Estate Investment Trusts

Erik Devos, Thomas McInish, Michael McKenzie, James Upson

The Journal of Real Estate Finance and Economics, 27 July 2013

Naked short selling and purposeful fails-to-deliver have been identified in the popular press and by the SEC as contributing factors to the stock market decline in 2008. We investigate the market impact of the announcement that fails-to-deliver have occurred for a sample of real estate investment trusts (REITs). We find little evidence that this announcement affects returns or has any market manipulation ability. We find that fails-to-deliver are most consistent with a 1 to 3 days delivery difference between the short sale and offsetting covering trades. These results hold independent of the type of REIT (equity or mortgage REITs). Overall, our findings suggest that naked short selling and purposeful fails-to-deliver may not have contributed much to REIT losses during the financial crisis.

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Article: Naked Short Selling and Market Returns

Article - Academic

Naked Short Selling and Market Returns

Thomas J. Boulton, Marcus V. Braga-Alves

The Journal of Portfolio Management, 30 April 2012

Boulton and Braga-Alves study persistent failures to deliver (fails) to better understand naked short sellers’ trading strategies, their ability to profit from their trades, and the market’s reaction to information about their activities. Contrary to recent claims that naked short sellers are momentum traders who drive down stock prices, they find that returns are typically positive just prior to periods of increased naked short selling that result in persistent fails and that returns generally remain positive for several weeks afterward.

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Article: The impact of naked short selling on the securities lending and equity market

Article - Academic

The impact of naked short selling on the securities lending and equity market

Steven Lecce, Andrew Lepone, Michael D. McKenzie, Reuben Segara

Journal of Financial Markets, 1 February 2012

This paper examines the impact of naked short selling on equity markets where it is restricted to securities on an approved list. Consistent with Miller’s (1977) intuition, stocks with the highest dispersion of opinions and short sale constraints are the only stocks to exhibit significant and negative abnormal returns in the post-event period. We also find slightly higher stock return volatility and a small reduction in liquidity when naked short sales are allowed. Overall, it impairs market quality (liquidity and volatility), although there appears to be some improvement in price efficiency in stocks with high short sale constraints.

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Article: How the Australian Ban on Short Selling During the GFC Affected Market Quality and Volatility

Article - Academic

How the Australian Ban on Short Selling During the GFC Affected Market Quality and Volatility

Thomas Henker, Julia Henker, Uwe Helmes

2012 Financial Markets & Corporate Governance Conference, 30 August 2011

We examine the effects of the short selling ban, imposed by Australian regulators in the wake of the global financial crisis, on trading of financial stocks. Unlike other developed markets, where regulators imposed short-selling restrictions for brief periods of time at the height of the financial crisis, the ban on short selling of financial stocks on the Australian Stock Exchange lasted eight months, including both the tumultuous end of 2008 and the calmer period up to May 2009.

PDF (55 pages): How the Australian Ban on Short Selling During the GFC Affected Market Quality and Volatility

Article:Short Selling in a Financial Crisis: The Regulation of Short Sales in the United Kingdom and the United States

Article - Academic

Short Selling in a Financial Crisis: The Regulation
of Short Sales in the United Kingdom and the
United States

Katherine McGavin

Northwestern Journal of International Law & Business, 15 December 2010

In a well-regulated market with minimal risk of abuse, the liquidity
and information efficiency benefits of short selling far outweigh its
potential harm. Contrary to the recent hostility short sellers face from
market regulators and the popular press,’ short sellers in aggregate are
neither market villains nor agents of destruction. While a small minority of
short sellers have exploited lax regulation and inattentive enforcement of
anti-abuse rules to manipulate stock prices and earn substantial fees, these
rare episodes suggest that the world’s major capital markets need better
enforcement of existing rules and not new rules per se. The failure of
market regulators to prevent abuse and manipulation of stock prices by short sellers and curb naked short selling reflects a failure of enforcement,
not bad underlying policy.

PDF  (41 pages): Short Selling in a Financial Crisis: The Regulation
of Short Sales in the United Kingdom and the
United States

Article: The skinny on the 2008 naked short-sale restrictions

Article - Academic

The skinny on the 2008 naked short-sale restrictions

Thomas J. Boulton, Marcus V. Braga-Alves

Journal of Financial Markets, 1 November 2010

On July 15, 2008, the US Securities and Exchange Commission announced temporary restrictions on naked short sales of the stocks of 19 financial firms. The restrictions offer a unique empirical setting to test Miller’s (1977) conjecture that short-sale constraints result in overpriced securities and low subsequent returns. Consistent with Miller’s overpricing hypothesis, we find evidence of a positive (negative) market reaction to the announcement (expiration) of the short-sale restrictions. Announcement returns are higher for firms that appear to be subject to more naked short selling in the days immediately preceding the announcement of the restrictions.

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