Article: Save The Billionaire Short-Sellers!

Article - Media

Save The Billionaire Short-Sellers!

Rch Karlgaard

Forbes, 24 March 2009

My, oh my. Here is a shocker. James Chanos, the billionaire short-seller, opposes any reforms that would tilt the stock market away from shorting selling. Here is his argument. Not surprisingly, Chanos, whose firm Kynikos means “cynic” in Greek, leaves out all the recent history that has made short-selling so lucrative. Such as:

3. Naked short-selling. Cox’s SEC failed to enforce its own rule against naked short-selling. Again, Wikipedia: “Naked short-selling, or naked shorting, is a type of financial speculation. It is the practice of selling a stock short, without first borrowing the shares or ensuring that the shares can be borrowed, as is done in a conventional short sale. When the seller does not obtain the shares within the required time frame, the result is known as a “fail to deliver.” The transaction generally remains open until the shares are acquired by the seller or the seller’s broker, allowing the trade to be settled. Naked short-selling can be used to manipulate the price of securities by driving their price down, and its use in this way is illegal. … Some commentators have contended that despite regulations, naked shorting is widespread and that the SEC regulations are poorly enforced. The SEC has denied these claims. However, the SEC and others have also defended the practice in limited form as beneficial for market liquidity. Its critics have contended that the practice is susceptible to abuse, can be damaging to targeted companies struggling to raise capital, and has led to numerous bankruptcies.”

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Web: Remember How Naked Short Selling Wasn’t a Big Deal?

Web

Remember How Naked Short Selling Wasn’t a Big Deal?

Bob O’Brien

Sanity Check via Wayback, 28 January 2009

Bernie Madoff’s brokerage owed $600 million in stock to its clients, that it, well, didn’t actually have on hand, as in the shares were either never delivered to the brokerage, or far more likely, it just, “Desked the trades” – meaning that it took the client cash, represented the securities as having been bought in the market and delivered (via the brokerage statement the client got every month), but never bothered with buying the shares.

Also known as one type of naked short selling.

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