Category: Article – Academic

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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.

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Article: Naked short sales and fails-to-deliver An overview of clearing and settlement procedures for stock trades in the USA

Article - Academic

Naked short sales and fails-to-deliver: An overview of clearing and settlement procedures for stock trades in the USA

Tālis Putniņš

Journal of Securities Operations & Custody, 1 January 2010

This paper outlines the process of clearing and settlement for stock trades in the USA. It pays particular attention to what happens when the seller of a stock fails to deliver that stock at settlement and describes the mechanisms to resolve delivery failures. Fails-to-deliver can occur for a number of reasons, such as human error, administrative delays and the controversial practice of naked short selling. This paper helps understand the implications of naked short selling for trade counterparties and, more generally, the effects of naked short selling on the clearing and settlement system.

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Article: In Pursuit of the Naked Short by Alexis Stokes

Article - Academic

In Pursuit of the Naked Short

Alexis Stokes, Texas State University

Journal of Law and Business 5/1 (Spring 2009)

This article explores the origins of naked short-selling litigation; considers
the failures of significant naked short-selling lawsuits in federal court;
surveys the obstacles erected collectively by constitutional standing requirements, the Federal Rules of Civil Procedure, the Private Securities Litigation Reform Act, brokerage firms, death spiral financiers, and the Depository Trust and Clearing Corporation; examines the efficacy of Regulation SHO, SEC rule 10b-21, and new FINRA rules; discusses recent state legislation and state court litigation; and identifies non-litigation options to curb naked short-selling. Ultimately, this article seeks to answer the question: If manipulative naked short-selling is more than a mythological scapegoat for
small cap failure, what remedies are, or should be, available?

PDF (62 Pages): Article In Pursuit of the Naked Short

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Article: Gary Weiss, Psychopath & Scaramouch

Article - Academic

Gary Weiss, Psychopath & Scaramouch

Patrick Byrne

Portfolio Magazine cited by DeepCapture, 31 December 2008

For over 10 years Gary Weiss (once a reporter with BusinessWeek, and recently, a columnist with Forbes) has been posting under fake names to confuse, distort, and hijack Usenet groups, stock message boards, and Wikipedia, using social media to prevent the public from understanding criminal activity.

I now turn to Gary Weiss. Last year one of the most prominent journalists on Wall Street warned me, “I’ve known Weiss for years. Be careful. He’s a psychopath.” As you will see, he was neither joking nor exaggerating. I think, however, that Gary is better described as a “Scaramouch.”

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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.

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Article: Naked Short Selling – How Exposed Are Investors?

Article - Academic

Naked Short Selling: How Exposed are Investors?

James W. Christian, Robert Shapiro, John-Paul Whalen

The Houston Law Review, 10 November 2006

Regulation SHO is a start, but in order to guarantee a fair market place, the SEC must close the loopholes in Regulation SHO and institute comprehensive reforms to the clearing and settlement system. Until the SEC makes these necessary reforms and addresses the DTCC’s mismanagement of the Stock Borrow Program, investors will continue to be exposed to the manipulative potential of naked short selling.

PDF (58 Pages):  HLR Naked Short Selling 2006-11-10

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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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