Sunday Sep 7 2008
All times are London time
I have written a column for the Weekend FT on the crackdown on short-selling on both sides of the Atlantic. I can see the point of trying to curb bear raids on fragile financial institutions but short-sellers generally provide a useful service. You can read it here and comment below.
About this blog
I am the FT's chief business commentator and this blog is about business, finance, media, technology and related matters. I live in New York so there is a bias towards US topics but I range more widely. Comments and criticism, which hopefully are at least as interesting as anything I write, are welcome. There is more about me on my columnist page.
Excellent column and spot on. I would like to add that if naked shorting is bad so is naked longing, ie buying on margin. Of course it isnt, but I have never heart regulators whine about wild upside movements. A stockmarket is a mechanism of price discovery and should be regulated only with regard to the accuracy of numbers and facts.
Posted by: Orca | July 19th, 2008 at 11:28 am | Report this commentKind regards,
Orca - Belgium
The new SEC short selling rule is a threat to the debt markets. Players in those markets buy convertible bonds, straigth debt, bank loans and short credit default swaps and as a hedge short stocks of the underlying company. Since typically there are many more debt securities outstanding that shares available for borrow this system needs a certain number of naked shorts to function. With the new rules the SEC is sucking the air out of the debt markets, since there will be much less activity if traders are not able to hedge properly. Shorting stock is not always (in fact rarely) a one way view. It is a very effecitve risk management tool and hence helps provide liquidity to the market. By taking that ability away from the market the SEC is making things just much worse. We hope the rules will be reversed and short selling can happen as freely as before. If certain banks are at risk of failing because of short sellers than maybe they should not be in business in the first place. In fact the SEC list a perfect list of stocks investors should stay away from
Posted by: Krim Delko | July 19th, 2008 at 5:26 pm | Report this commentI’m really surprised at how biased this article is. As the SEC has made it clear, short selling is not outlawed. Naked short selling is - for the time being - and we all know naked shorts exist for the pure and visceral purpose of profiting from speculation.
Einhorn operates a short-selling hedge fund. That description alone explains his modus operandi and his interests in seeing (and sowing perhaps) turbulences in the marketplace. Clearly Einhorn chose not to pressure Lehman’s Board for more transparency through legitimate ways but rather through innuendos and unsubstantiated facts. (He’s not talking now, is he.)
Short-sellers are people with limited financial expertise. Real people with financial expertise make and sell financial instruments and products that contribute to economic prosperity, not robbing the house on fire.
Posted by: mtlyorel | July 20th, 2008 at 6:48 pm | Report this commentFrom my Midwestern upbringing, I was taught that selling something you don’t own is fraud. It would seem according to the article, I could sell someone the Golden Gate Bridge, if I could “Borrow” it from CA, and was going to buy it back when the price went down. Of course, that would be conspricy to commit fraud, because CA would have no intention of selling the Bridge.
Posted by: MOind | July 20th, 2008 at 10:02 pm | Report this comment