Reinstate the Uptick Rule?

A group of market commentators from TheStreet.com, including James Cramer, have put out a petition which lobbies for the reinstatement of the original Uptick Rule, as opposed to a loophole-laden approximation filled with caveats and work-arounds as is rumored to be a possibility.

The SEC is currently seeking comment until June 19th. There were only 27 comments received prior to the Uptick Rule being abolished in 2007, so this time, if you feel strongly, this petition gives you a way to make yourself heard.

Cramer’s co-writers on the letter are Scott Rothbort, Eric Oberg and Bill Furber, all accomplished market watchers and participants in their own right.

There are two lines of reasoning that I’ll highlight here before sending you over to read the letter in full or to sign the petition digitally if you agree with their rationale.

I would say that as a capitalist (and one who believes in a trader’s right to short), the following is the most appealing argument to me in favor of having some regulations regarding shorting stocks:

When the Uptick Rule was initially implemented in the late 1930’s, there was an implicit acknowledgement that companies were not commodities. There was recognition that the capital markets served the broader purpose of capital formation; that companies create products, provide services, employ citizens and pay taxes and thus there was an interest to promote market integrity and protect interstate commerce.

To me, this differentiation between corporations and commodities seems to be common sense, pro-business and frankly, pro-American.

The second line of reasoning I’ll mention is probably going to be the most contentious point made in this debate, amongst investors of every stripe. It concerns the proliferation and effect of leveraged short and ultra-short ETFs:

Another question that has arisen is the proliferation of levered “short side” sector based ETFs. These funds have mushroomed with the elimination of price tests, and have raised innumerable issues in the markets...These ETFs were somehow approved by the Commission, despite seemingly obviating the margin rules set forth by the Federal Reserve...These funds have exacerbated volatility and created significant selling pressure during the downturn…The great irony is that these products, due to their construct, do not even work for longer term holders, so in reality these are speculative instruments meant for intra-day trades, not for hedging or for investment. As intra-day speculative short selling vehicles unchecked by a plus tick test, they are sopping up available liquidity, rather than providing liquidity.

This leveraged ETF section of the letter has Eric Oberg’s fingerprints all over it. Oberg is a Goldman Sachs alum who has done a ton of homework on how these products work and he has been railing against them for the last few months.

I’m not sure that the empirical evidence presented on The Street.com or elsewhere has definitively made the case that these products have had a tremendous amount of impact on volatility, but there has been some interesting anecdotal evidence about these instruments’ involvement in deliberate manipulation.

One of the other authors of the petition, Scott Rothbort of LakeView Asset Management, has just posted this graphic of the issues that the lack of a rule has engendered this morning:

Whether you are a proponent of the old Uptick Rule, a new one or none at all, this petition has the entire laundry list of aspects that should be considered and is worth a read.

Full Story: Uptick Rule Letter (TSC)

Read Also: My Previous Commentary on the Uptick Rule

Comments

[koolsool:]

Short sellers act as if they are trying to take away short selling altogether. They act as if there will be no more short selling if there is an uptick rule. This attitude is absurd & totally ridiculous. All that is being asked is that the rules be inforced the way they were written before the 2007 rule change made by an incompetent Chris Cox.

May 14 11:23 AM

[viewfromnyc:]

Traders realize a few things about markets. There are many different types of participants in the equity market, to list a few; short term momentum traders, hedgers, speculators, long term value holders, long term growth (momentum), short sellers, mean reversion traders. Understanding the interaction between and the behaviors of the different types of participants helps the best traders and investors profit. Introducing an asymmetry in the market through an uptick rule simply creates an environment that favors long sellers over short sellers. The tick rule allows long sellers to sell first and at a higher price, compare the hypothetical execution of a long sell market order and a short sell market order in a decling market. The long seller will tap out the first bid and the short seller's trade won't get executed unitl the market stops declining and ticks up.

In capitalism, the main purpose of a stock market is to lower the cost of equity capital by providing liquidity. Anything that reduces liquidity, e.g. restricting short sales through a tick test, raises the cost of capital for companies that raise capital. Short sellers are the only market participants that eventually need to buy. Removing or reducing the participation leads to higher volatility, since short selling has a potential dampening effect as they amplify the effect of mean reversion value investors, buying in big declines and selling on big moves up. All those who are skeptical of the academic work on short selling that led to the removal of the up tick rule by the SEC, should look at the Australian market during the period when short selling was banned.

Finally as a long time arbitrageur, the outcry over naked short selling is completely overblown. For the past 15 years that I have been in the market almost every NYSE and actively traded NASDAQ stock has been available to borrow, albeit some at a steep cost as high -30% rebate. Naked short selling is only a problem in the penny stock and OTCBB arenas where no real investors should be anyway.

May 14 12:04 PM

[CaptainJJack:]

You make the false argument that anybody wants to do away with short selling. I want regulations for short selling, but I do not propse doing away with it.

There primary benefit of short selling is price discovery. At an average of 2 billion + shares traded a day, liquidity is not the primary benefit.

However, there is NO public good served by manipulating a stock price of a given company. I believe that it is possible to do this in an unregulated market --- that is why I think regulations are needed.

Stated a different way, markets are NOT efficient, nor are they necessarily self correcting.

While the uptick rule is not a particularly effective rule in most cases, there is some benefit in extreme cases.


On May 14 12:04 PM viewfromnyc wrote:

> Traders realize a few things about markets. There are many different
> types of participants in the equity market, to list a few; short
> term momentum traders, hedgers, speculators, long term value holders,
> long term growth (momentum), short sellers, mean reversion traders.
> Understanding the interaction between and the behaviors of the different
> types of participants helps the best traders and investors profit.
> Introducing an asymmetry in the market through an uptick rule simply
> creates an environment that favors long sellers over short sellers.
> The tick rule allows long sellers to sell first and at a higher price,
> compare the hypothetical execution of a long sell market order and
> a short sell market order in a decling market. The long seller will
> tap out the first bid and the short seller's trade won't get executed
> unitl the market stops declining and ticks up.
>
> In capitalism, the main purpose of a stock market is to lower the
> cost of equity capital by providing liquidity. Anything that reduces
> liquidity, e.g. restricting short sales through a tick test, raises
> the cost of capital for companies that raise capital. Short sellers
> are the only market participants that eventually need to buy. Removing
> or reducing the participation leads to higher volatility, since short
> selling has a potential dampening effect as they amplify the effect
> of mean reversion value investors, buying in big declines and selling
> on big moves up. All those who are skeptical of the academic work
> on short selling that led to the removal of the up tick rule by the
> SEC, should look at the Australian market during the period when
> short selling was banned.
>
> Finally as a long time arbitrageur, the outcry over naked short selling
> is completely overblown. For the past 15 years that I have been
> in the market almost every NYSE and actively traded NASDAQ stock
> has been available to borrow, albeit some at a steep cost as high
> -30% rebate. Naked short selling is only a problem in the penny
> stock and OTCBB arenas where no real investors should be anyway.

May 14 01:20 PM

[kohalakid:]

I'll be for an Uptick Rule when they also put in place a Downtick Rule.
Price discovery and liquidity are the function of an exchange.
If you buy a stock and get pushed out of your position because some short seller runs the price down 5-10%, you shouldn't be buying that stock anyway. You should be buying more, assuming the fundamentals haven't changed.

I want my researched stocks to reflect their true value, not some inflated, feel good price that is so illiquid I can't sell 1500 shares without killing the market.

May 14 01:27 PM

[Buckoux:]

"...a better approach would be to tax short sales--" Comment by Roger Knights.

It never ceases to amaze me that so many people consider the use of the tax code as a proper vehicle for the deterrence or punishment of another's undesirable behavior. The use of the word tax, in place of the word fine, is the same as Clinton's "investment" instead of government expenditure. These euphemisms replacing tax and expenditure are meant to deceive the public. If short sales are contrary to the public good, then impose a FINE and not a "tax". The distortion of language is as serious a matter as is the distortion of public policy because when used together they enable each other. Even the "Capital Gains Tax" is nothing more than a fine on good fortune. Even if one adds a cute title such as: "TickTax Rule", abusive tax policy is still un-American.

May 14 02:06 PM

[Market Sniper:]

The uptick rule debate is a smoke screen to divert attention from the REAL problem which is the failure to deliver (FTD) naked shorting. It is already banned but rules are rarely enforced. The hole in the regulations is due to the very nature of the specialist/market maker function. When everyone is buying, it is often impossible for them not to be naked short (often for periods far in excess of the 3 day settlement period) in order to keep an orderly market. If you have a fund that employs programmed shorting, it is not too difficult to set up a market maker arm for your operation and thus escape the SHO Rule. How do we handle that? Perhaps we should look at not allowing such an incestuous relationship to exist in the first place. As for the uptick rule. I am not convinced that reinstitution of the up tick rule is a very good idea. Look at the Shanghai market. Shorting of ANY kind has never been allowed. The previous sell off there dwarfs what we have seen here. Legal shorts are captive buyers and add liquidity to markets. Indeed, making short selling more difficult may drive more traders to the ETFs and further remove market liquidity. Also, it is minor annoyance for the short seller. As you can create your own uptick. Want to short 20,000 shares of IBM? Buy 100 shares at the market and then sell short 20,100 shares. Also, we now trade in pennies and not 1/8ths. How much of an uptick? 1 cent? 5 cents? Two upticks in a row? Reinstate the uptick rule? Be careful of what you ask for, you just may get it.

May 14 02:47 PM

[Whippet:]

Brilliant comment. The arguments to reinstate the uptick rule are asinine, and the rationale behind the arguments leaves logic behind. Correlation does not equal causation. Every evil short sale is followed by the inevitable buy-to-cover. These events in the aggregate cause resistance and support, respectively. Without covering shorts to CREATE upticks on the way down, the fall can be even more deadly.
Did the uptick rule stop the '87 crash? Why not institute a symmetrical downtick rule for long buys? The SEC needs to stop wasting their time on this Cramer's - er, Fool's Errand and get back to ignoring the next Bernie Madoff.


On May 14 02:47 PM Market Sniper wrote:

> The uptick rule debate is a smoke screen to divert attention from
> the REAL problem which is the failure to deliver (seekingalpha.com/symbo...)
> naked shorting. It is already banned but rules are rarely enforced.
> The hole in the regulations is due to the very nature of the specialist/market
> maker function. When everyone is buying, it is often impossible for
> them not to be naked short (often for periods far in excess of the
> 3 day settlement period) in order to keep an orderly market. If you
> have a fund that employs programmed shorting, it is not too difficult
> to set up a market maker arm for your operation and thus escape the
> SHO Rule. How do we handle that? Perhaps we should look at not allowing
> such an incestuous relationship to exist in the first place. As for
> the uptick rule. I am not convinced that reinstitution of the up
> tick rule is a very good idea. Look at the Shanghai market. Shorting
> of ANY kind has never been allowed. The previous sell off there dwarfs
> what we have seen here. Legal shorts are captive buyers and add liquidity
> to markets. Indeed, making short selling more difficult may drive
> more traders to the ETFs and further remove market liquidity. Also,
> it is minor annoyance for the short seller. As you can create your
> own uptick. Want to short 20,000 shares of IBM? Buy 100 shares at
> the market and then sell short 20,100 shares. Also, we now trade
> in pennies and not 1/8ths. How much of an uptick? 1 cent? 5 cents?
> Two upticks in a row? Reinstate the uptick rule? Be careful of what
> you ask for, you just may get it.

May 14 03:10 PM

[koolsool:]

Hmmmmm. The short sellers must not have made any money before the rule was changed in 2007. It must have been a total suckers bet to be a short seller before the uptick rule was changed in 2007.

May 14 03:59 PM

[Roger Knights:]

Buckoux wrote:
" If short sales are contrary to the public good, then impose a FINE and not a "tax". The distortion of language is as serious a matter as is the distortion of public policy because when used together they enable each other."

There are things called "sin taxes," like the taxes on tobacco and alcohol. The cap-and-trade taxes on CO2 proposed by global-warming alarmists are in that category. Their aim in part is to reduce consumption of the items involved. They're called for in situations where a prohibition would be impractical or unjustified. It's a flexible response that is better than an outright prohibition, especially in the case of practices that are not sins, but that cause market distortions or other problems in situations where they get out of hand.

Derivatives are an example. They aren't wrong in themselves, but they are dangerous if a company has too much exposure to them. Their excessive use should be discouraged. It's not a Yes/No matter, but a matter of degree.

Similarly, the problem with short-selling isn't that it's wrong in itself, but that it's wrong when shorts start "piling on," because that can cause stock prices to overshoot on the down side, which can damage the companies affected. (E.g., by making it harder for them to get loans, float bonds, retain employees who have stock options, etc.) Given that the problem is "too much," not the thing per se, some method of reducing the "muchness" is the proper solution.

Even if fans of short selling won’t accept that there are ever any such significant negative outcomes from short-selling, they should recognize that a mere financial penalty on down-tick short-selling is vastly preferable to its outright prohibition. If the prohibitionists are on the warpath—and they are--and a TickTax can head them off, shorts should applaud it as the best they can hope for, in the circumstances.

Incidentally, one of the benefits of a TickTax is that it could be automatically applied by software in the stock exchange, depending on conditions. (I wrote: "the tax could be adjusted upwards by the SEC during market crashes, or during short-attacks on vulnerable sectors of the market.") Perhaps I should have added that it could be adjusted downwards (including down to zero) in normal times, or in stocks with a low short interest and/or that hadn't fallen much yet. (But that could have been extrapolated from what I said.)

May 14 09:56 PM

[irieblue:]

Josh, my frustrations with your article is you didn't mention why the uptick rule came into being in the first place. IMHO you can not have a credible discussion on this issue unless you understand why it came into being...This statement
"When the Uptick Rule was initially implemented in the late 1930’"

This omits so much of the effort and history that went into the creation of the uptick rule. The uptick rule was created as a result of the aftermath of the Great Crash/ Depression. Many congressional hearings, much input. It served the markets for over 70 years. There was a reason why it was thought necessary.

Your article failed to mentioned the results of the SEC's emergency short selling ban last September and the effects on the companies protected by the ban.

You fail to mention that without the uptick rule the entire indices have never gyrated so much in a single day. The stat I saw is that the number days the various indicies have swung so violently in a single day in all of 2008 is more that the combined total since the inception of the various Market. How are we served by such volatility that sees the DOW swing by 800 points in a single day.

viewfromnyc how long did you think about your statement before typing it i.e that Naked short selling is only a problem in the penny stock and OTCBB arenas where no real investors should be anyway.

Have you looked at the Fails data for Lehman Bros www.sec.gov/foia/docs/... Over 30 Million shares failed to be delivered in a single day. What do you think this does to share price. Without an uptick you can sell and sell and sell 30 million shares that you have no intention of delivering, yep eventually you have a penny stock.

Does anyone dispute that with an uptick rule the SKF ETF would not exist? It would not exist because there is no way for it to have wait for an uptick in all the underlying stocks they represent.

Regarding a downtick, we have never needed to layoff people or require government bailouts if a stock price rises rapidly.

The SKF ETF has on many occasions represented more that 50% of all the trading in the financials in a single day, often selling into the close.

May 15 02:53 AM

[Baboon:]

There is big difference between taxing tobacco & alcohol consumption and taxing the stock transactions. In the first case it's just that: consumption tax. In the second case people are trading stocks for a living. So taxing the stock transactions should be treated as taxing business. But government should not tax a business transaction that didn't yet produce any profits. In my opinion such tax must be outlawed by constitution.


On May 14 09:56 PM Roger Knights wrote:

> Buckoux wrote:
> " If short sales are contrary to the public good, then impose a FINE
> and not a "tax". The distortion of language is as serious a matter
> as is the distortion of public policy because when used together
> they enable each other."
>
> There are things called "sin taxes," like the taxes on tobacco and
> alcohol. The cap-and-trade taxes on CO2 proposed by global-warming
> alarmists are in that category. Their aim in part is to reduce consumption
> of the items involved. They're called for in situations where a prohibition
> would be impractical or unjustified. It's a flexible response that
> is better than an outright prohibition, especially in the case of
> practices that are not sins, but that cause market distortions or
> other problems in situations where they get out of hand.
>
> Derivatives are an example. They aren't wrong in themselves, but
> they are dangerous if a company has too much exposure to them. Their
> excessive use should be discouraged. It's not a Yes/No matter, but
> a matter of degree.
>
> Similarly, the problem with short-selling isn't that it's wrong in
> itself, but that it's wrong when shorts start "piling on," because
> that can cause stock prices to overshoot on the down side, which
> can damage the companies affected. (E.g., by making it harder for
> them to get loans, float bonds, retain employees who have stock options,
> etc.) Given that the problem is "too much," not the thing per se,
> some method of reducing the "muchness" is the proper solution. <br/>
>
> Even if fans of short selling won’t accept that there are ever any
> such significant negative outcomes from short-selling, they should
> recognize that a mere financial penalty on down-tick short-selling
> is vastly preferable to its outright prohibition. If the prohibitionists
> are on the warpath—and they are--and a TickTax can head them off,
> shorts should applaud it as the best they can hope for, in the circumstances.
>
>
> Incidentally, one of the benefits of a TickTax is that it could be
> automatically applied by software in the stock exchange, depending
> on conditions. (I wrote: "the tax could be adjusted upwards by the
> SEC during market crashes, or during short-attacks on vulnerable
> sectors of the market.") Perhaps I should have added that it could
> be adjusted downwards (including down to zero) in normal times, or
> in stocks with a low short interest and/or that hadn't fallen much
> yet. (But that could have been extrapolated from what I said.)<br/>
>

May 15 08:01 AM

[Whippet:]

irieblue- You make several statements found wanting in common sense.
1) "You fail to mention that without the uptick rule the entire indices have never gyrated so much in a single day."
Correlation does not prove causation. The VIX hit levels nearly as high in 1987, before computerized platforms handled the traffic and while the uptick rule was firmly in place. Please provide any evidence that volatility and the uptick rule are even correlated.
2) "This omits so much of the effort and history that went into the creation of the uptick rule. The uptick rule was created as a result of the aftermath of the Great Crash/ Depression. Many congressional hearings, much input. It served the markets for over 70 years. There was a reason why it was thought necessary."
Same then as now- public sentiments trump facts and evidence. I'm sure Congress was just as brilliant then as it is now in interpreting financial data.
3) "Have you looked at the Fails data for Lehman Bros sec.gov/foia/docs/... Over 30 Million shares failed to be delivered in a single day. What do you think this does to share price. Without an uptick you can sell and sell and sell 30 million shares that you have no intention of delivering, yep eventually you have a penny stock."
What do you think the fair, market price of Lehman Brothers was at that time? I think evidence unearthed since that day has justified the price reached by market discovery. Perhaps the focus should be placed elsewhere, such as on the rotted-out heartwood of the company.
4) "Does anyone dispute that with an uptick rule the SKF ETF would not exist? It would not exist because there is no way for it to have wait for an uptick in all the underlying stocks they represent."
I agree that it would not exist. But why would this be a good thing?
5) "Regarding a downtick, we have never needed to layoff people or require government bailouts if a stock price rises rapidly."
Nonsense, nonsense, nonsense. I agree a downtick rule is absurd, as the uptick rule is. But divorcing upward price action, especially velocity, from downward price action is absurd. As we have seen, rapidly rising stock prices cause just as many problems- companies dilute out their shareholders, investors hop on and get creamed in the Greater Fool contest, bubbles form. What goes up must come down.

Your underlying premise seems to be that short selling is evil. It's unAmerican, it's rooting for Goliath instead of David, it's crashing a party. I take it that we should eliminate options as well, because a synthetic short position (long put/short call) is equivalent to short stock and can be opened at anytime, uptick or downtick.

May 15 10:25 AM

[yank:]

blue:
I thought your comments on the uptick were 100% correct. All these other posters bashing your viewpoint are missing the point. You and others are NOT tryiing to eliminate the short sellers. Where were the short sellers from the 1930s to 2006-07 when there was an uptick place? Answer: actively shorting stocks. There is nothing wrong with shorting stocks. But there is something wrong when we change the rules to favor one position (short) over another (long). It's called "inequality" and leads to distortions in trading practices. Most of us have read the conclusions of the study that examined the methodology used to support the decision to remove the uptick. The analysis concluded that the SEC study was deeply flawed as it examined trading patterns during a period of extended low volatility ( a condition which is not typical of the stock market). It is very clear to me (even as a Repub) that Cox "sold out" to his hedge fund buddies to allow them to "rape and pillage" the markets. Personally I would like to see Cox, Paulson, and Bernanke all go to jail for fraud on a massive, unprecedented scale.

Yank


On May 15 02:53 AM irieblue wrote:

> Josh, my frustrations with your article is you didn't mention why
> the uptick rule came into being in the first place. IMHO you can
> not have a credible discussion on this issue unless you understand
> why it came into being...This statement
> "When the Uptick Rule was initially implemented in the late 1930’"
>
>
> This omits so much of the effort and history that went into the creation
> of the uptick rule. The uptick rule was created as a result of the
> aftermath of the Great Crash/ Depression. Many congressional hearings,
> much input. It served the markets for over 70 years. There was a
> reason why it was thought necessary.
>
> Your article failed to mentioned the results of the SEC's emergency
> short selling ban last September and the effects on the companies
> protected by the ban.
>
> You fail to mention that without the uptick rule the entire indices
> have never gyrated so much in a single day. The stat I saw is that
> the number days the various indicies have swung so violently in a
> single day in all of 2008 is more that the combined total since the
> inception of the various Market. How are we served by such volatility
> that sees the DOW swing by 800 points in a single day.
>
> viewfromnyc how long did you think about your statement before typing
> it i.e that Naked short selling is only a problem in the penny stock
> and OTCBB arenas where no real investors should be anyway.
>
> Have you looked at the Fails data for Lehman Bros www.sec.gov/foia/docs/...
> Over 30 Million shares failed to be delivered in a single day. What
> do you think this does to share price. Without an uptick you can
> sell and sell and sell 30 million shares that you have no intention
> of delivering, yep eventually you have a penny stock.
>
> Does anyone dispute that with an uptick rule the SKF ETF would not
> exist? It would not exist because there is no way for it to have
> wait for an uptick in all the underlying stocks they represent.<br/>
>
> Regarding a downtick, we have never needed to layoff people or require
> government bailouts if a stock price rises rapidly.
>
> The SKF ETF has on many occasions represented more that 50% of all
> the trading in the financials in a single day, often selling into
> the close.

May 15 11:04 AM

[Baboon:]

That's exactly what the uptick rule is trying to do: to create the inequality of one position (long) over another (short). Without the uptick rule both sides are equal. If you want the uptick rule don't forget to bring the downtick rule to the game. Equal opportunity for all sorts of players.

On May 15 11:04 AM yank wrote:

>But there is something wrong when we change the
> rules to favor one position (short) over another (long). It's called
> "inequality" and leads to distortions in trading practices.

May 15 12:47 PM

[irieblue:]

Regarding a downtick rule there is rule 10b-18 that restricts how companies can repurchase their shares, so as not to influence the share price see www.sec.gov/divisions/...

Why do Mutual funds (who cannot short stocks) have to declare their long positions, but short selling Hedge funds *do not* . Why is all the short selling stats a trailing 30 day? reveal, How is it that hedge funds forced the SEC to keep their short positions private, while every other long position is out in the open. How can you honestly say there is equal parity/disclosure between the Long and Short sellers. The Short Sellers have so many exemptions because they seem to have captured the SEC.

I want to be clear that Lehman's was reckless and needed to be euthanized (at least their Management needed to go) however that decision was not for illegal short selling hedge funds to make. The naked short sellers dog piled the company into the ground before any reasonable rescue could be performed, what happened to Lehman was not orderly price discovery, but pure illegal activity by short sellers who counterfeited stock.

The SKF and turbo charged ETF's need to go away because they provide excessive Leverage, and bypass Reg T en.wikipedia.org/wiki/... states how much leverage a Broker can provide to customers.

Have people forgotten that in the one month , every single Investment bank folded in the US, Even Gold Sachs converted to a bank holding company which means they can no longer leverage up to the 50+/1 ratios they had at the top of the Market.

May 16 01:39 AM

[Baboon:]

So what is at is the root of the problem: naked short-selling, short-selling disclosure or overleveraging? You can't seem to make up your mind. And all of those issues have nothing to do with the uptick rule per se.


On May 16 01:39 AM irieblue wrote:

> Regarding a downtick rule there is rule 10b-18 that restricts how
> companies can repurchase their shares, so as not to influence the
> share price see www.sec.gov/divisions/...
>
>
> Why do Mutual funds (who cannot short stocks) have to declare their
> long positions, but short selling Hedge funds *do not* . Why is all
> the short selling stats a trailing 30 day? reveal, How is it that
> hedge funds forced the SEC to keep their short positions private,
> while every other long position is out in the open. How can you honestly
> say there is equal parity/disclosure between the Long and Short sellers.
> The Short Sellers have so many exemptions because they seem to have
> captured the SEC.
>
> I want to be clear that Lehman's was reckless and needed to be
> euthanized (at least their Management needed to go) however that
> decision was not for illegal short selling hedge funds to make. The
> naked short sellers dog piled the company into the ground before
> any reasonable rescue could be performed, what happened to Lehman
> was not orderly price discovery, but pure illegal activity by short
> sellers who counterfeited stock.
>
> The SKF and turbo charged ETF's need to go away because they provide
> excessive Leverage, and bypass Reg T en.wikipedia.org/wiki/...
> states how much leverage a Broker can provide to customers.
>
> Have people forgotten that in the one month , every single Investment
> bank folded in the US, Even Gold Sachs converted to a bank holding
> company which means they can no longer leverage up to the 50+/1 ratios
> they had at the top of the Market.

May 16 08:55 AM

[irieblue:]

Here is how the great scam of 2008 worked, you take out a Credit default swap against Lehman's Bonds, (some example numbers to insure 100 $Million worth of Bonds the premium was $200, 000 per year). You naked short sell Lehman's common without an uptick in sight, with 2 possible outcomes, either Lehman goes under and you are made whole on your CDS, or the price of the Credit Default swap spikes towards a 1:1 payout.

No uptick, with excessive leverage and Abusive Naked Short selling (or let's call it what it really is stock counterfeiting) is at the root of the current financial mess.

May 16 12:10 PM

[Baboon:]

Why did it have to be Lehman? Because Lehman was vulnerable. Maybe because it's business was sensitive to it's share price and false rumors. Or for any other reasons. It's business was not solid enough to withstand the adverse conditions. It's Lehman's fault. Did Lehman know about this risk when it went public? Why you think Lehman didn't deserve to go bankrupt? In my book any company deserves to be bankrupt if it's not strong enough to stand upright. Don't blame the wind for breaking a tree.

You can't pull this trick with any company.
Try to do it with a solid company like IBM. You'll lose your shirt. Don't try to present it like there is no risk in shorting the company's price.


On May 16 12:10 PM irieblue wrote:

> Here is how the great scam of 2008 worked, you take out a Credit
> default swap against Lehman's Bonds, (some example numbers to insure
> 100 $Million worth of Bonds the premium was $200, 000 per year).
> You naked short sell Lehman's common without an uptick in sight,
> with 2 possible outcomes, either Lehman goes under and you are made
> whole on your CDS, or the price of the Credit Default swap spikes
> towards a 1:1 payout.
>
> No uptick, with excessive leverage and Abusive Naked Short selling
> (or let's call it what it really is stock counterfeiting) is at the
> root of the current financial mess.

May 16 06:24 PM

[irieblue:]

It wasn't just Lehman, it was Bear Stearns, it was almost Citibank, it would have been Merrill Lynch if not for a shotgun marriage. It should be the "free markets" that decide a company's fate not a select few naked short sellers/ hedge funds who use illegal manipulative practices.

There is no risk in selling a stock short if you never intend to deliver it.

May 21 01:33 AM

[irieblue:]

6/2/2009 Mary Shapiro Testimony Before the Subcommittee on Financial Services and General Government

Combating Abusive Short-Selling

www.s-ox.com/dsp_getFe...

"We also recognize that strong rules and vigorous enforcement are needed to curb abusive short selling and restore confidence in our markets. The Commission has been focused on the issue of abusive “naked” short selling since before my arrival in late January, and the Commission’s regulatory actions have led to a significant decline in failures to deliver securities on time following a short sale. Moreover, our Division of Enforcement has a number of active investigations involving potentially abusive short selling in a variety of contexts."

So I guess this is no longer a Myth...

Jun 02 11:26 PM