glassbox

What Pushed the SEC to Tighten the Rules - Now?

Jack Mat, agree with you. And owners who want to lend out their shares should be paid - and there should be a fair mechanism determining that price. Shares being held by trustees for pension funds - the amount paid shoudl go back to fund holders, and not thru soft comm or rebates to the managers. All these should be transparent.

What Pushed the SEC to Tighten the Rules - Now?

Takayama, in everything there is manipulation. SEC's move and the industry's response just tells you even with shorting there is manipulation. You have not proven that short selling has made the market more efficient. Its just given manipulators another tool - that's all.

What Pushed the SEC to Tighten the Rules - Now?

Of course, if shareholders feel that they don't mind lending their shares out for those who want to short, there should be nothing to stop them as this is a free country. Then there should be disclosure as to who is lending the scrip and who is borrowing them. This is information which is very relevant to ensure that a major shareholder does not hold the shares and gets someone else to short it (essentially creating a synthetic short position). In addition, shareholders should be given the choice if they;d like to lend their shares and be paid for it at a price which reflects the true demand and supply of the shares. Also, I'd like to see trustees/custodians of pension and discretionary funds make it a point to ensure that they are exercise the right fiduciary duties in protecting the rights of the shares owned by their clients managed by them.

What Pushed the SEC to Tighten the Rules - Now?

Takayama, I don't understand how banning short selling will cause a stock market bubble. Like I said before, if a company is badly run, the shareholders can either sell their stock or adopt an activist stand to improve the management. There is no bubble to speak of. Are you suggesting that there are enough silly people out there that will keep buying overvalued companies? If a company is overvalue, then investors just move on to an undervalued company. If they cannot find any good value in the listed companies, then just stay in cash.

Please support your claim how shorting equities actually supports an efficient market.

What Pushed the SEC to Tighten the Rules - Now?

I think the US is perhaps the most laxed country in acknowledging the systemic risk of allowing short selling in the world - many 'less developed' countries have certain rules about it that protect the shareholders e.g. from outright ban to being clear about stock lending and borrowing practices by clearing house.

Well, would this conversely suggest that equities is quite highly undervalued in this particular market (assuming that there was this biasness to bring value down)? I've been long on the financials since April/May and perhaps this might be a good case to put more money in US equities??

What Pushed the SEC to Tighten the Rules - Now?

Just because short selling so called improves liquidity does not necessarily make it fair and a desirable mechanism. Let's be clear about the difference between a concept (that liquidity is a desirable trait for the market) and what is an execution mechanism (naked short selling or even not naked, do shareholders know that their stocks are being lent?).

What Pushed the SEC to Tighten the Rules - Now?

Short selling is a derivative. It is derived from the shareholder's willingness to lend. So, the SEC has failed to plug looks like what is an obvious hole. Whilst its easy to blame them, I'm just wondering how is it possible to have so many shareholders willing to lend them? So, can shareholders whose stock have been sold down on lent stocks (esp without their knowledge) sue? What have trustees and custodians done to ensure that shareholder's rights (including their right to hold on to their shares and not lend anyone) been protected? This loophole has obviously been around for a long time and many fund managers/custodians/in... banks have been absolutely silent about them.....all because they know that they can earn more fees...

Whilst regulators have failed to a certain extent, I think we should not forget those who are in the fiduciary position to protect the shareholders too.