Bloomberg special on Naked Short Selling

[sprstpd]

Quote from Retief:

What about developmental stage companies, that IPOed to obtain capital to develop important inventions, you know, like a cure for cancer or AIDS, or a company developing a solution to the energy crisis? What happens when the shares of a company like that are shorted to zero by an infinite supply of shares flooding the market from naked shorting?

A company like that would, in my opinion, never be naked shorted.

What's the value of something in infinite supply, like the air you breathe or shares that can be sold with no limit as to the amount available?

I think infinite supply is an exaggeration, but it is a fair point. It just seems to me that if there is legitimate value in the company, the naked shorters will eventually be taken out of the game.

 

[RedDuke]

What purpose does naked shorting serve? I looks that there is none, why not abolish it then if it is such evil.

 

[sprstpd]

Quote from RedDuke:

What purpose does naked shorting serve? I looks that there is none, why not abolish it then if it is such evil.

Since it is illegal, it should be abolished. In its current form it is probably used to either deviously manipulate the price of a stock downwards or it is a response to the fact that so many people want to bet against a company because of its lack of quality, that they have to naked short (aren't enough shares to borrow for everyone's appetitie).

 

[flytiger]

Interesting, Retief, you bring up 1929. This is how the white trash of Boston got their trust fund going - well, this and bootlegging.

The twenties saw huge Bear Raids by the likes of old Joe. Overwhelm a stock w/bad news and fake shares. How'd that turn out? Investment pools, they called them. You morons will say, "well, it worked out in 15 years or so. What's the big deal?"

It's why FDR chose ole Joe to head up the SEC, where you got the acts of 33 and 4 to stop such nonsense. People saw where it led.

Now, they just ignore the laws meant to stop such things.

When you jump, boys, watch out for parked cars. It's the polite thing to do.

 

[ratboy88]

Quote from ElatedMaverick:

You analogies carry no relevant logic whatsoever, but here I'll adapt - I will buy all of your masterpieces that you will sell me below value, then ask for more, and still more and more, and then oops..... guess what, another buyer who saw me loading up is here and he wants some too. Next comes another shrewd value player with even bigger pockets, another and another with cash in hand.... next the technical traders start to show up..... soon after that the momo crowd comes along with daytraders in tow....finally a huge crowd is clamoring for your paintings and outbidding each other. What happens next? You are now a buyer too, and you are competing with all the other buyers to lift offers as the price jumps handles at a time until you have covered your last.

What if no one comes to buy you say? Well I guess you are selling it too high then, and in that case I certainly don't want to overpay you. What about the sucker who did buy? He didn't do as much research as you did and you might get paid for it.

Is there anything else that you don't understand about this process?

seriously.. have you ever traded one share in your life?

 

[ElCubano]

can someone bring me up to speed..I was at a retreat this weekend and really dont want to read the whole thing..

this looks like a juicy debate...

 

[ratboy88]

Quote from sprstpd:



A company like that would, in my opinion, never be naked shorted.



I think infinite supply is an exaggeration, but it is a fair point. It just seems to me that if there is legitimate value in the company, the naked shorters will eventually be taken out of the game. [/B]

you sound like you are starting to figure out this dynamic.. keep going.

 

[ratboy88]

Quote from RedDuke:

What purpose does naked shorting serve? I looks that there is none, why not abolish it then if it is such evil.

the only time it is legal is for LEGITIMATE market makers to provide liquidity. this does not include hedge funds. the true villians are the prime brokers and their networks.

 

[nutmeg]

"this does not include hedge funds."

I thought hedge funds were getting into the options bidness.

 

[ratboy88]

Quote from nutmeg:

"this does not include hedge funds."

I thought hedge funds were getting into the options bidness.

has nothing to do with my statement. naked shorting is allowed for market makers providing liquidity... not hedge funds.