Short seling: The T+3 Close-Out Requirement

[luckybastard]

Do you have a problem with a pump and dump? Run a stock up on false rumors and early buying to support the rumor and then sell out in the buy side euphoria to collect your profit? You shouldn't based on how I described the big funds that day trade and your acceptance to that.

I don't have a problem with a hedgefund buying 5 million shares in an illiquid stock, causing a 10% run up and then a 10% tank (ore even more), since THAT is what happens if you close EOD. In fact, I'm thankful since they've caused good opportunities for a beautiful short, if you're paying attention and a beautiful entry EOD for a long position.

The thing that i DO have a problem with is the spreading of false rumours in an attempt to cause a market move. That is illegal and should be punished. So, the spreading of rumours is what should be punished, NOT the long buying or short selling.

Furthermore, investing is about trust. If people don't trust a bank anymore, they will redraw money and won't invest anymore. This trust is based on a LOT of things, but for the BIG investor/client, it's NOT the chart that creates the trust. Again, spreading of bad false rumours is a major crime and cause here, which should be punished severly. But you seem to forget that these banks just were having LOTS of troubles, you seem to think that if a bank has a good balance sheet, can proof it doesn't have bad investment and huge losses, a few hedgefunds can destroy it. And that, Patchie, is just completely false.

I'm from the Netherlands, here we have a (smaller) bank called Rabobank, which hasnt'been involved in a lot of these bad credits and who posted the biggest profit of all banks, last quarter. Go and shortsell that bank with your hedgefund and see how you're going to get killed.

 

[luckybastard]

You see, banning short selling is not helping at all. Any market professional knows. The SEC knows, at least, they ought to know.

So why did the SEC come up with that rule if they know it's not helping ? They simply had to do SOMETHING. They have to let mr. Bush know that they're 'on top of things' and that they've taken action. And to the public (and mr. Bush) it sounds like a good idea: any sell drives a market down, so short selling must do the same. It's all politics. THAT's why we have this rule. And i think you know that too.

IMHO, what would have been best: start a HUGE investigation into the rumours, lots of media attention, find the responsible perons and 'hang' them in public (take away all their profits and send them to prison for the rest of their lives). That way they wouldn't have hurt the financial industry and would have sent out a strong message to the industry about spreading false rumours.