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I actually cast the first stone in this so I will shout the first mia
culpa.
Also, a few have asked me to expand on why I feel naked shorts and
covered shorts are different animals and have different effects in a
rational market. Below is a short summary of my thoughts on
that.
Covered short selling retains the balance "on the books" for
the total stock in a company. If you have to own or borrow stock to short
it then the maximum total short position can never exceed 100% of the
float. That fact means market forces will insure that as greater and
greater covered shorts are sold the stock available to borrow and
therefore the cost to borrow that stock will increase in an inverse
proportional response and act as a brake on the shorts themselves.
Naked shorting eliminates this important built in counter-force.
Also, naked shorting allows a book imbalance that could (and has) in the
extreme case when a company fails leaves the result that the total book
longs, shorts, naked shorts can NOT be balanced and someone is left
footing the bill. This happened back in the 70s when Bunker Hunt
attempted to corner the silver market and brokers (including some of his
very own brokers) sold short against him until the price collapsed.
The huge naked short volume made it impossible to balance the books and
the CME ultimately had to unwind several weeks of trading to get back to
a book balancing point and reconcile the real world market.
Now, I'd say that is one huge difference between naked shorts and covered
shorts. It is not the only one but it is the one I think I
understand the best.
Boater805
At 07:54 PM 9/18/2008, you wrote:
I will warn one time, keep this
kind of crap off the list or I'll remove offenders without further
discussion.
Bob
On Thu, Sep 18, 2008 at 10:36 PM, Mark Simms
<marksimms@xxxxxxxxxxx>
wrote:
- Wow - you are so smart...can I kiss your
ass ?
-
- From:
realtraders@xxxxxxxxxxxxxxx
[
mailto:realtraders@xxxxxxxxxxxxxxx] On Behalf Of hostmaster
- Sent: Thursday, September 18, 2008 9:36 PM
- To:
realtraders@xxxxxxxxxxxxxxx
- Subject: Re: [RT] SEC proclamation
- It is far better to remain silent and be thought a fool rather than
speak out and remove all doubt.
- None the less, you have opted to speak out. So let me put short
shift to your hyperbole.
- The SEC is halting NAKED short selling, not short selling.
Short selling is a useful and natural feedback mechanism for markets. It
is even more so when enforced in conjuction with the uptick rule.
Naked shorting OTH is solely for speculation and not for hedging of
investment positions. The societal purpose of markets is for
investors. Speculators and traders have their place in the market
to help provide liquidity. However, naked shorting does not provide any
useful or constructive function to markets and will not be missed as it
was not missed for the 150+ years it didn't exist in the
markets.
- Just as margin requirements are a valid and useful market regulator,
so are balancing tools such as prohibition of naked shorting.
- Boater805
- At 05:55 PM 9/18/2008, you wrote:
- SEC to halt short selling
-
- What would happen if it were:
- SEC to halt Long Buying
-
- What's the difference ?
-
- It is a totally biased action on their
part.
-
No virus found in this incoming message.
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Version: 8.0.169 / Virus Database: 270.6.21/1677 - Release Date:
9/17/2008 5:07 PM
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