So why are hedge funds the only ones bitching about the new SEC shorting rules?
- Thread starter halik
- Start date
Short selling should be severely restricted. What these funds are doing is creating massive short positions, spreading rumours in the market and watching the stock price plummett as a result. Morgran Stanley got hit pretty bad by these funds despite their strong capital base. A similar thing is happening to Macquarie in Australia. The run on bear stearns that led to its demise was also largely because of market rumours.
The main argument short sellers will make is that short selling helps improve market completeness and they have a point. However, there's too much unscruplous short selling activity going on.
The main argument short sellers will make is that short selling helps improve market completeness and they have a point. However, there's too much unscruplous short selling activity going on.
New rules instituted by the SEC forbid naked shorting.
What naked shorting is basically allowing you to bet against the stock without borrowing any of its shares.
What regular shorting does is it forces you to find somoene in the market that is willing to LEND you the shares so you can short them before you actually do.
Here is how hedge funds operate at times like this.....
Hedge funds have massive amounts of money. Enough to influence the market. So what they do is something like this:
We are seeing the financial companies go down and down fast....
Hedge funds short the living crap out of the stocks that are on their way down, enough so that it causes 'panic' and sell offs further dropping the price.
SOMETIMES, hedge funds are bold enough to have a buddy analyst or someone else post a news story saying something like 'insiders say Goldman Sachs is about to go under' which FURTHER pushes the stock price down.
The Hedge Funds cover their postions and VIOLA! they just made a TON of money.
What naked shorting is basically allowing you to bet against the stock without borrowing any of its shares.
What regular shorting does is it forces you to find somoene in the market that is willing to LEND you the shares so you can short them before you actually do.
Here is how hedge funds operate at times like this.....
Hedge funds have massive amounts of money. Enough to influence the market. So what they do is something like this:
We are seeing the financial companies go down and down fast....
Hedge funds short the living crap out of the stocks that are on their way down, enough so that it causes 'panic' and sell offs further dropping the price.
SOMETIMES, hedge funds are bold enough to have a buddy analyst or someone else post a news story saying something like 'insiders say Goldman Sachs is about to go under' which FURTHER pushes the stock price down.
The Hedge Funds cover their postions and VIOLA! they just made a TON of money.
- Oct 10, 2000
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We all know what the alleged issue is, I wanna know what's the counter argument. Naked short selling was made in case of sudden illiquidity, but that doesn't really apply to financials (the SEC rule is specific to those).
The latter part of your post is absolute horseshit,
I worked in investment research at Goldman and what you typed couldn't be farther from the truth. Analyst can't 'post a new story' .... not anywhere close to it. If anything these rumors get started from deal insiders that see swap premiums go up.
It isn't just hedge funds. Anyone that respects the market ability to correctly price a stock should be up in arms as well.
Sorry halik but I respectfully disagree. I currently work in an investment bank. What would you make of the false rumours that went on CNBC about CITIC in talks with Morgan Stanley then? There's always a few bad eggs, and maybe the people you worked with at Goldmans wouldn't have done that but there will a few, a small few albeit, that would.
What I say is absolutely true.
News affects the market in big ways. Do you know why gold went up 80 bucks yesterday? A story out of China said that they are looking at options of SWITCHING from the dollar as a reserve currency and possibly going into gold.
Whether true or not, the story does affect the market.
Ideally naked shorting does not cause a company to fundementally go bust. But in order to kill all the naked shorts you usually need TIME to squeeze them out. When a whole ton of shorts occur really fast a company like Bear Stearns or Lehman simply runs out of time to rectify their position. That is not saying that Bear Stearns or Lehman went down becaue of naked shorts, but they accelerated the final outcome.
Thump553
Lifer
- Jun 2, 2000
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I totally disagree. I have no problem with shorting as such, and do it on occassion, but the current system of naked shorting with no uptick rule allows big players to manipulate stock prices at will. Fund A can start shorting Company B and continue to do it in large amounts and rapid succession until the price plunges. Spread (or take advantage of) a well placed rumor and the downward cycle self perpetuates. Fund A then covers and makes a killing-at the expense of the other shareholders. Nothing of value is created-in fact the markets are made more volatile and untrustworthy.
A good example-Apple (APPL). It has been trading in the range of 150-180 for several months, and two weeks ago it was in the mid-170s and trending up. Starting last Friday (approx) it has plunged consistently, and yesterday closed below 130. Nothing but good news has come out about Apple, and they aren't at all associated with the swamp that is the financial sector.
Hedge funds exist to take advantage of regulatory loopholes (only very rich can participate in them). They have been running rampart over the market and our economy in general (look at the crude oil bubbble) for the last several years. Some intelligent regulation is sorely needed.
- Oct 10, 2000
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Well that's what I'm saying - it's a lot more likely that some banker opens his mouth in a wrong place than research analyst 'posting false news stories'. Most people have no idea what goes into publishing a research note - it takes 3 analysts and 3 lawyers (independently and in sequence) and the a final approval of the research overview board. You can't just 'post' a fake story... SEC takes that stuff VERY seriously (people went to jail for that before SarbOx)
You mean how does one sell a share that doesn't exist?
Naked short selling is basically an invitation to manipulate the market and should be completely banned. In some cases it helps with true price/price discovery, but the fact that it can create undue financial chaos and manipulation it should be illegal. If hedge funds really believed that a stock is overvalued, they can just buy derivatives.
Awwwww some of the criminals have lost some of their tools of the criminal trade.
Poor rich boys
I think its funny that Lehman Liked to Short people down alot and ultimately they got shorted to oblivion themselves. What goes around, comes around. There are alot of people Shorting the crap out of the financials for the last few weeks.
People agree with short selling until their stock is getting a targeted attack
People agree with short selling until their stock is getting a targeted attack
Not true, I've see companies purposely short sell their own stock so the execs at the top make millions killing the perfectly good company.
I worked at Hayes Modems and witnessed them do that back in 1998.
9-18-2008 http://news.yahoo.com/s/ap/200...ge/cuomo_short_selling
New York's attorney general says he's launching an investigation into whether some traders used illegal tactics to drive down the stock price of several Wall Street firms.
Attorney General Andrew Cuomo told reporters Thursday his office has received a "significant number" of complaints about short sellers, or investors who hope to profit by placing bets that a company's stock will fall.
Short-selling is not illegal. But Cuomo says he will focus on whether short sellers engaged in conspiracy or spread bad information to influence the stock prices of Lehman Brothers Holdings Inc., American International Group Inc. and other firms that have been hammered in the ongoing financial crisis.
Originally posted by: Linux23
They'll develop more.
I know they will in addition to bringing oil over $200
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