Ban on Naked short Selling – Is it the solution ?


A brief moratorium on shorting can stabilise stock prices and restore some confidence, its definetly a good thing.

The regulators have banned all shorting _ naked and covered that is, and in all stocks and sectors.


The Economics of Naked Short Selling

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Naked short selling has been the focus of an increasing. number of lawsuits. Despite the cries of alarm, we believe that naked short selling

It is a killer for the ASX, as well as liquidity in general. In a normal market, short selling accounts for a third of volumes and right now the share would be closer to 50%. Despite the conspiracy theories, shorting is not just about hedge funds ravaging stock prices for their own greedy ends _ though that is a good part of it.

Banning short selling means less liquidity therefore more volatility in share prices.



Naked short selling, or naked shorting, 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". However, the transaction generally continues to sit open until the shares are acquired by the seller or the seller’s broker, allowing a trade to occur when the order is filled.[1]

In the United States, naked short selling is covered by various SEC regulations which, as of September 2008, prohibit the practice. In 2005, "Regulation SHO" was enacted to curb the practice, requiring that broker-dealers have grounds to believe that shares will be available for a given stock transaction, and requiring that delivery take place within a limited time period.[2][3] As part of its response to the crisis in the North American markets in 2008, the SEC issued a temporary order restricting fails to deliver in the shares of 19 financial firms deemed systemically important.[4] Effective September 18, 2008, following the the largest bankruptcy filing in U.S. history by Lehman Brothers, the SEC made permanent and expanded the rules to remove exceptions and to cover all companies.[5]


September (7)

~~ Stock Picks and Stuff from JJ ~~

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