Comments on: Naked shorting is dead http://www.goodevalue.com/2009/04/naked-shorting-is-dead/ It may be cheap, but is it a Goode value? Sun, 29 Aug 2010 19:27:42 -0400 http://wordpress.org/?v=2.8 hourly 1 By: Arthur Martinson http://www.goodevalue.com/2009/04/naked-shorting-is-dead/comment-page-1/#comment-1253 Arthur Martinson Mon, 27 Jul 2009 22:56:38 +0000 http://www.goodevalue.com/?p=394#comment-1253 When I was 16 I read "Heads You Win, Tails You Win" by Ray Dirks. I learned 2 valuable things (among others): Never sell short and never buy on margin. No more naked short selling allowed? Good! When I was 16 I read “Heads You Win, Tails You Win” by Ray Dirks. I learned 2 valuable things (among others): Never sell short and never buy on margin. No more naked short selling allowed? Good!

]]> By: Patrick Byrne http://www.goodevalue.com/2009/04/naked-shorting-is-dead/comment-page-1/#comment-1060 Patrick Byrne Thu, 23 Apr 2009 19:15:40 +0000 http://www.goodevalue.com/?p=394#comment-1060 Mike, "first, let me apologize for taking so long to approve your comment. For some reason I didn’t get the email from my blog saying there was a comment awaiting moderation." No worries at all. As for the rest: you sound like you get it. it really is all about failures. They could be short sales or long. Also, fails to deliver AND fails to receive (which sound like they should be symmetric, but they are not). T+0 settlement would be tough, say some, but I won't argue there either. Best, Patrick Mike,

“first, let me apologize for taking so long to approve your comment. For some reason I didn’t get the email from my blog saying there was a comment awaiting moderation.”

No worries at all.

As for the rest: you sound like you get it. it really is all about failures. They could be short sales or long. Also, fails to deliver AND fails to receive (which sound like they should be symmetric, but they are not). T+0 settlement would be tough, say some, but I won’t argue there either.

Best,
Patrick

]]> By: michael http://www.goodevalue.com/2009/04/naked-shorting-is-dead/comment-page-1/#comment-1056 michael Mon, 20 Apr 2009 17:30:00 +0000 http://www.goodevalue.com/?p=394#comment-1056 Getting back to the question of naked short selling and fails to deliver, one thing I would suggest is for all short sales to be prohibited once a stock gets on the Reg SHO threshold list (excepting maybe only options market makers). This of course would eliminate speculative naked shorting. Conversely, the SEC should require brokers not to force buy-ins of existing shorts but rather fine them something like LIBOR + 10% for as long as the stock remains on the threshold list. This would enable the earliest and most convinced shorts to hold onto their short positions while decreasing the fails to deliver over a period of time. It is important to reward those shorts because they are the ones who add value by doing the research and finding problems with companies. Also, this system, rather than the current system of buy-ins, will result in fewer and weaker short squeezes (which benefit no one but a few day-traders). I think the above system would be great for minimizing fails to deliver and short squeezes which both distort the market. Also, the SEC should establish a market for long-term borrows so that fundamental short sellers can borrow stock and not have to worry about buy-ins or penalty borrow rates. Again, this would encourage fundamental research and reward the most knowledgeable shorts sellers. Getting back to the question of naked short selling and fails to deliver, one thing I would suggest is for all short sales to be prohibited once a stock gets on the Reg SHO threshold list (excepting maybe only options market makers). This of course would eliminate speculative naked shorting. Conversely, the SEC should require brokers not to force buy-ins of existing shorts but rather fine them something like LIBOR + 10% for as long as the stock remains on the threshold list. This would enable the earliest and most convinced shorts to hold onto their short positions while decreasing the fails to deliver over a period of time. It is important to reward those shorts because they are the ones who add value by doing the research and finding problems with companies. Also, this system, rather than the current system of buy-ins, will result in fewer and weaker short squeezes (which benefit no one but a few day-traders).

I think the above system would be great for minimizing fails to deliver and short squeezes which both distort the market. Also, the SEC should establish a market for long-term borrows so that fundamental short sellers can borrow stock and not have to worry about buy-ins or penalty borrow rates. Again, this would encourage fundamental research and reward the most knowledgeable shorts sellers.

]]> By: michael http://www.goodevalue.com/2009/04/naked-shorting-is-dead/comment-page-1/#comment-1055 michael Mon, 20 Apr 2009 17:10:24 +0000 http://www.goodevalue.com/?p=394#comment-1055 Patrick -- first, let me apologize for taking so long to approve your comment. For some reason I didn't get the email from my blog saying there was a comment awaiting moderation. As to your point, I generally agree that more data is better. I would also like to see FTD information that indicates how many FTDs resulted from short sales and how many from long sales. From my understanding of the DTCC's continuous settlement process that might be difficult to do. I think we could do a lot better than our current system of clearing. One simple change would be to require end of day settlement ... ignoring the issue of short selling there is no reason it can't be done and it would mean cash account investors would not have to wait between making trades. Patrick — first, let me apologize for taking so long to approve your comment. For some reason I didn’t get the email from my blog saying there was a comment awaiting moderation. As to your point, I generally agree that more data is better. I would also like to see FTD information that indicates how many FTDs resulted from short sales and how many from long sales. From my understanding of the DTCC’s continuous settlement process that might be difficult to do.

I think we could do a lot better than our current system of clearing. One simple change would be to require end of day settlement … ignoring the issue of short selling there is no reason it can’t be done and it would mean cash account investors would not have to wait between making trades.

]]> By: Patrick Byrne http://www.goodevalue.com/2009/04/naked-shorting-is-dead/comment-page-1/#comment-1053 Patrick Byrne Wed, 15 Apr 2009 04:23:37 +0000 http://www.goodevalue.com/?p=394#comment-1053 Maybe you're right or.... maybe you're not. Here is a crazy idea I like to use when I cannot decide between those two possibilities: let's see the data. Not data of the form, "Here's how long the list is of companies whose stock meets some arbitrary definition set by the SEC, and no one else, and you can trust us about that." Data in the form of fails data, from all brokers, Stock Borrow Program, fails to deliver and receive in CNS, and ex-clearing. Oh... what? We cannot? It might destabilize the market? Should that tell me something? Oh, and the Managed Funds Association is out there with a lobbying position that holds, "We're not doing that thing you say we're doing, but it will destroy the market's liquidity if we stop doing the thing we're not doing." Hmmm. That also sounds a bit funny. So I repeat: let's just see the data. Patrick Byrne Maybe you’re right or…. maybe you’re not. Here is a crazy idea I like to use when I cannot decide between those two possibilities: let’s see the data. Not data of the form, “Here’s how long the list is of companies whose stock meets some arbitrary definition set by the SEC, and no one else, and you can trust us about that.” Data in the form of fails data, from all brokers, Stock Borrow Program, fails to deliver and receive in CNS, and ex-clearing. Oh… what? We cannot? It might destabilize the market? Should that tell me something?

Oh, and the Managed Funds Association is out there with a lobbying position that holds, “We’re not doing that thing you say we’re doing, but it will destroy the market’s liquidity if we stop doing the thing we’re not doing.”

Hmmm. That also sounds a bit funny. So I repeat: let’s just see the data.

Patrick Byrne

]]> By: Nightly (Value) Investment Links #123 | Simoleon Sense http://www.goodevalue.com/2009/04/naked-shorting-is-dead/comment-page-1/#comment-1052 Nightly (Value) Investment Links #123 | Simoleon Sense Tue, 14 Apr 2009 22:37:25 +0000 http://www.goodevalue.com/?p=394#comment-1052 [...] (UTX) Dividend Stock Analysis - Via Vinvesting 13. Sources Of Volatility - Via Barel Karsan 14. Naked shorting is dead - Via Good Value Investing Blog 15. THE IMPORTANCE OF RETURN ON CAPITAL - Via Magic Diligence 16. [...] [...] (UTX) Dividend Stock Analysis – Via Vinvesting 13. Sources Of Volatility – Via Barel Karsan 14. Naked shorting is dead – Via Good Value Investing Blog 15. THE IMPORTANCE OF RETURN ON CAPITAL – Via Magic Diligence 16. [...]

]]> By: John Hunter http://www.goodevalue.com/2009/04/naked-shorting-is-dead/comment-page-1/#comment-1051 John Hunter Tue, 14 Apr 2009 21:03:33 +0000 http://www.goodevalue.com/?p=394#comment-1051 Good, it should be dead (though it needs to have ). I don't have a problem with covered short selling, but I do think naked short selling is bad for the market. Good, it should be dead (though it needs to have ). I don’t have a problem with covered short selling, but I do think naked short selling is bad for the market.

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