Did short ban on financials help or hurt?

The impacts of the ban n short selling is a myth.

Lets use facts instead of rhetoric.

1. The average daily short sale volume in Morgan Stanley during the ban as near identical to the average daily volume before the ban. (i.e. No impact)

2. The short sale ban altered a change in trade pattern that was about to destroy Morgan Stanley as the three day period that led to this ban illustrates exponential rise in daily short volume.

3. The recent markets and market crisis expose how abusive and inefficient a market can be when short sellers are not held accountable for settling trades. The SEC has long failed to address settlement failure abuses in the short sale process. Ironically they failed during a period when the market was flat or appreciating. Now that the market is collapsing you can see how easily trades can suddenly be covered. Now that it is cost effective to cover, trades are suddenly efficient.

So did the ban work? Yes it worked. It allowed shot sales tcontinue without high levels of manipulation and the trades are suddeny settling. To say that the markets fell despite no short selling is also false since short sale volume remained in MS despitet ban and remained at near normal levels.

Below are links to the raw data that supports these claims. I hope those that talk about this in an alternative view can likewise do so with data.

Morgan Stanley daily Short Sale Volume as reported by the NYSE:

http://www.deepcapture.com/wp-content/uploads/2008/10/ms_shorts.pdf

Regulation SHO Threshold List Companies Trend Lines (2005 - present)

http://investigatethesec.com/drupal-5.5/node/464
 
Why do people keep on overlooking the most obvious of everything: the market maker exemption is the reason why the short ban did not work.

While the foolish retail folks (like myself) were loading up on stock, the market maker acts as his counterparty. We pay top dollar. The MM, who controls the bid & ask under normal market conditions (and tilts the scale for his own favor when it can go either way), waited for the right moment(s) and gave some of us retail folks our worse losses ever.


Again, it DID NOT take hedge funds (who were banned from shorting) to do that. It was the MM--who nobody talks about.

All the above is my carefully formulated opinion.
 
Quote from Option Trader:

Why do people keep on overlooking the most obvious of everything: the market maker exemption is the reason why the short ban did not work.

While the foolish retail folks (like myself) were loading up on stock, the market maker acts as his counterparty. We pay top dollar. The MM, who controls the bid & ask under normal market conditions (and tilts the scale for his own favor when it can go either way), waited for the right moment(s) and gave some of us retail folks our worse losses ever.


Again, it DID NOT take hedge funds (who were banned from shorting) to do that. It was the MM--who nobody talks about.

All the above is my carefully formulated opinion.
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didn't it take a couple days for the sec to give the option market makers an exemption? The first could days of this ban seemed more volatile then after the market maker exemption was put in.

the sec has said they don't care if stocks go up and down, but they wanted to reduce volatility and stock manipulation in the market place, i think
 
Quote from KeithOmalley:

didn't it take a couple days for the sec to give the option market makers an exemption? The first could days of this ban seemed more volatile then after the market maker exemption was put in.

the sec has said they don't care if stocks go up and down, but they wanted to reduce volatility and stock manipulation in the market place, i think
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Someone correct me if I'm wrong, but my understanding is that from day one the market makers for stocks had exemptions--only we retail folks didn't know about it till later. Quite interesting (and tragic) that the market maker is able to take on big positions as your counterparty, and hold those short positions for indefinite periods of time, then at the point of the first downturn, HELP the stock to tank.

Is that what's called making "a fair & orderly market"? Why don't we retail folks wake up??
 
Quote from Option Trader:

Someone correct me if I'm wrong, but my understanding is that from day one the market makers for stocks had exemptions--only we retail folks didn't know about it till later. Quite interesting (and tragic) that the market maker is able to take on big positions as your counterparty, and hold those short positions for indefinite periods of time, then at the point of the first downturn, HELP the stock to tank.

Is that what's called making "a fair & orderly market"? Why don't we retail folks wake up??
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short ban 9/18/2008

the option market maker could short on 9/22/08 with this admentment

http://sec.gov/rules/other/2008/34-58611.pdf
 
Quote from Option Trader:

Your talking options market makers. I'm talking the MM for stocks (who for NYSE stocks is also the specialist).
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you are correct. stock market makers where exempt from this order
 
Well now.....

One strong possibly is that the demand supply for equities themselves have changed to some degree....in that the number
of hedge funds dwarf the number of hedge funds that used to exist...as did the leverage that was made available through GS, MS, etc....

The fact is that equities are not infinite in supply....and many of the managers that used similar strategies found themselves enterring and exiting at similar times.....

What the market really needs is a lot more volume of all kinds in order to facilitate the various strategies without falling off of, or climbing cliffs....

When the leverage was called in during the last call for happy hour....when GS and MS converted to banks....the proof positive showed up in spades as to the effects of hedge funds on oil prices, emerging stock prices, and the US stock market.....

What would make for a healthier market would be to have a truly universal direct access exchange whereby all participants would be invited....at modest leverage ...and practically no transaction costs....

The likes of BATS has already proven that a successful exchange can be in any country with reliable internet facilities.....

The idea of hidden pools, and other venues off the main highway.....and having the majority of management boiling down to a few highly levered pools with similar styles ....does not make for a proper marketplace....

It should be such that if a Japanese housewife wants to buy a Blue Chip US stock.....she could go to Wiki-Stocks to get information....and then via direct access....could make a 100 share purchase for less than 10 cents.......The shares would trade in margined units ....1x.2x.3x.4x......with no margin accounts....and no minimum/maximum account size....

There would be no special forward look by an exchange member or type of advanced technology......No matter how big or small.....one would trade on this single market electronic direct access line and pay the same freight.....One could go short or long with no uptick or downtick rules.......

At the end of WSs prime....GS, MS, Leh, etc....had first look at clients positions because they offered incredibly high leverage in return.....you know the rest of the story......

...............................................................

By the way....all instruments traded by a public company must be traded on an exchange.....for public view....
.............................................................

The list goes on......
 
I think that short selling will be banned in the near future....

You think the stock going down or over priced...don't buy it...


You long and want to hedge....use options/futures/ETFs...


Shorting was first allowed to provide for hedge....no longer needed....too many abuses.....

No other investment class allows one to sell something he does not own....

As I have said before, not making a judgement....just a prediction of coming regulations....

SteveD

PS: Covering a short sale is not a natural buyer, LOL
 
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