Posted on 07/27/2008 10:12:33 PM PDT by Fred
Wall Street executives expect the Securities and Exchange Commission to extend the temporary limits it has placed on short-selling and expand them to cover additional stocks beyond the 19 financial companies it targeted two weeks ago.
The limits are set to expire Tuesday, and executives, lobbyists and hedge-fund representatives of the Managed Funds Association, the biggest hedge-fund industry group, have been talking throughout the weekend, trying to come up with possible approaches to asking the SEC to reconsider expanding the rules, according to people familiar with the talks.
A call with regulators on Friday gave the funds group "a fair degree of certainty" that the SEC intends to seek an extension of the emergency period, these people said. Regulators said an extension could be for as short as 60 days and could involve insurance, housing-industry and a broader range of financial stocks, according to these people. SEC Chairman Christopher Cox indicated last week the rules might be extended to all stocks.
In a short sale, a trader sells borrowed stock in a bet the price will decline and the stock can be profitably repurchased at a lower price. The new rules require specific arrangements to borrow shares in short sales rather than the existing rules, which allow a looser assurance the shares can be located.
The rules appear to have had their intended effect of halting the slide in shares of financial companies such as Fannie Mae, Freddie Mac and Lehman Brothers Holdings Inc. Combined with falling oil prices and encouraging earnings reports from some banks, shares in some of these names have doubled.
(Excerpt) Read more at online.wsj.com ...
I know that promises merely to pay a house mortage appear to have fallen by the wayside lately. And the rest of us are being asked to pay up for those speculators.
Yes, you can still short these stocks if you can achieve a legitimate borrow, but many traders I talk to have stated that brokers are declining their short orders altogether or are charging to short. A friend of mine was notified he’d be charged $75 a day to short a few thousand shs of FNM last week. I guess that’s not a lot of money per share, but it’s one of those things that gums up the works for some of my pals who work really fast.
Well, the difference is that a stock short who cannot prove that he legitimately borrowed the shorted shares could suffer a significant SEC fine and also suffer a costly and intrusive SEC investigation into their operations.
I’m with you on the promise to pay a mortgage. Seems to me, the folks who bought a home they could afford and have managed to make the payments timely are being made to be the biggest suckers around.
but it seems to me that going out and buying up all the oil at $100 a barrel and selling it at $140 a barrel is not the right thing to do.”
What??? It’s exactly what business and investing is all about!!!!!! Buy low, sell high.
What is your idea of the “right thing to do”?
Why would shorts over if the market falls precipitously? Haven't you heard of letting your profits run? Shorts don't cover if the market goes their way, they cover when it moves against them and the want to protect profits. A neophyte might cover if the market is moving his way, but not people that know what they're doing. If the market is moving their way, they're more likely to increase their positions.
Covering when the markets fall precipitously is a taxable event, forcing the shorts to share their profits with the IRS. The great advantage to shorting is when companies go belly-up. Then the shorts never have to cover and nothing gets reported to the IRS so they don't have to pay tax on their profits. Naked shorting is even better, because you don't even need to borrow the shares you';re selling because you';re just selling air, i.e., phantom shares. You can sell multiples of the entire shares outstanding of the company that is being shorted and make huge profits.
In addition, the SEC recently eliminated the up-tick rule for shorting, which had been in place since the great depression. Now you can hit every bid without the inconvenience of waiting for an up-tick and create huge downward pressure and enormous profits when selling those air-shares.
The conditions are ripe for a huge and lasting crash.
This is about NAKED shorting. These hedge funds are creating fraud and basically counterfeiting securities when they do not borrw shares they short. It results in excess shares in the market that the company has authorized. THIS FRAUD IS BiGgER THAN THE MORTGAGE MESS!
This action has destroyed thousands of companies. I pray they are serious about this!
Seems to me, the folks who bought a home they could afford and have managed to make the payments timely are being made to be the biggest suckers around.”
Yes, once again, yet again. Welcome to the responsible middle class, that world in which no good deed goes unpunished.
For some reason, this subject requires some mental gymnastics I've never quite gotten the hang of. If the shorts have been chased away, how can there be longs in the game? I thought every short required a long to make the transaction complete.
Where was the government agencies when wall street and financials was bankrolling trillions in subprime and alt-a toxic waste? Where was the government yelling for oversight when companies like countrywide, new century, and indymac were dumping all thier billions in toxic waste loans on Freddie Mac, Fannie Mae, Pension funds, and anyone else they could toss the green glowing potato too?
Now they try to scapegoat short sellers AFTER the ponzi scheme finally collapsed.
The short sellers didn’t cause this collapse in financials. They are only profiting off of what had been set in motion for years previously. You could see this coming from a mile away. Its no different than if you were shorting dot com stocks in 2000.
And one more thing Mr. Cox. Good luck with enforcing naked short selling rules. The majority of it is done in foreign countries like Germany and their governments couldn’t give a rip if they naked short our country into extinction. Hedgefund managers laugh at this crap as they naked short away. I’m laughing. What a total joke.
Well said.
Is that even possible to do? Nobody can buy up all the oil on the market. And if it is going for $100 a barrel why aren't other people buying it at that price instead of letting someone buy at $100 and sell to them at $140?
The investment banks are also bankrolling the naked shorting selling, the hedge dudes borrow huge sums to trade...
Help me understand Naked Shorts. (Sounds like a David Zucker film to me.)
The link you gave earlier says, “The illegal practice of short selling shares that have not been affirmatively determined to exist. “ If they don’t exist, how in the world does that affect the price of oil? And who turns around and purchases their non-existent shares? And why?
“What is your idea of the “right thing to do”?”
Suppose your kid has diabetes. You REALY have to have insulin for your kid. Your problem is that I bought all the manufacturer could make for the foreseeable future (he has a patent and nobody else can make it) and I want to charge you 1000 times the price.
It’s a free market right? Quit complaining, just pay my price and your kid can live...
You tell me. What is the right thing to do?
“I thought every short required a long to make the transaction complete.”
True. When you buy a share of stock, atleast on the NYSE or AMEX, you are buying from a/the market maker, who shorted (sold) it to you. You cannot conduct a transaction directly with a “short”, eg; a retail someone who is bearish on a stock who goes out and through the action of entering a short-sell order on said stock becomes short the stock. That’s the long-short symmetry. But the difference is that the market maker maintains a hedged position on VAST majority of the shares he owns and will not take much market risk. So, after he sells you your share on which you are now long, he looks at his holdings and decides whether his net long or short position is within his risk tolerance. That is...if he wants to stay in business. He will take very moderate directional risk but prefers to make money on the bid/ask spread thousands or hundreds of thousands or millions of times a day. If your order to buy makes him shorter than he cares to be, he will buy calls and increase his long position, and the same is true in reverse.
“Is that even possible to do? Nobody can buy up all the oil on the market.”
You wouldn’t have to buy it all. Just enough to effect the supply. Saudi Arabia pumps it out of the ground for $3 a barrel and it gets bought and sold 80 times before you get any for your car.
Why would shorts cover if the market falls precipitously?
Let me assure you, that any short who has overstayed his very brief welcome over the past five years has seen his profits evaporated in mere minutes.
Haven't you heard of letting your profits run? Shorts don't cover if the market goes their way, they cover when it moves against them and the want to protect profits. A neophyte might cover if the market is moving his way, but not people that know what they're doing. If the market is moving their way, they're more likely to increase their positions.
Disagree. First, I don't think you can characterize things so generally. But only the most skilled and well capitalized shorts can really follow a stock to the very bottom. No trader I know sticks around short for any significant time in this market, and the ones who have have been destroyed over the past five years. Over and over, I have seen the market recover violently no matter how rotten earnings have been. And I mean, to a man, every trader I know and I talk to a few dozen, are very very skittish.
Covering when the markets fall precipitously is a taxable event, forcing the shorts to share their profits with the IRS.
ALL short sales are short term gains by IRS definition, regardless of the holding period. IF you hold a short position over a year-change, there is a special treatment that is recommended, and you can defer the gain into the next tax year, but overall the transaction is subj to ST treatment.
The great advantage to shorting is when companies go belly-up. Then the shorts never have to cover and nothing gets reported to the IRS so they don't have to pay tax on their profits.
I read that too just recently on Puplava's site, and it is flat out false. Gains from a short sale are due when a stock becomes worthless, cover or not, and are always ST gains regardles of holding period. Think about it. If I short a put or a call and the put expires worthless, I never cover, right? Think the IRS will let get away with collecting the premium tax free? Nope.
Naked shorting is even better, because you don't even need to borrow the shares you';re selling because you';re just selling air, i.e., phantom shares. You can sell multiples of the entire shares outstanding of the company that is being shorted and make huge profits.
True.
In addition, the SEC recently eliminated the up-tick rule for shorting, which had been in place since the great depression. Now you can hit every bid without the inconvenience of waiting for an up-tick and create huge downward pressure and enormous profits when selling those air-shares.
Also true. IMO.
The conditions are ripe for a huge and lasting crash.
In a free market, I'd agree. But we don't have that.
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