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ASIC to probe short selling of shares


frankmal

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going short is no different to going long, l agree and l have no fundamental problem with it.

 

Ah, but King B - it IS different - VERY different. Going long means you are actually BUYING shares in a company - and many who do this are doing it to be involved, to own part of that company, to get dividends, or whatever. And yes, many do it purely for the capital gain and then sell the shares .

 

Going short is NOT buying shares - it is SELLING shares. And shares that you don't own. It is done purely to profit from the change in price - no other reason. Sure, you then have to buy back the shares preferably at a lower price. In covered shorts, these are then returned from whence they came. In naked shorts, they never existed in the first place.

 

That is a big difference between going long and short.

 

And as I've posted on numerous occasions, once you get large funds coordinating and targeting specific companies with shorting, then you have trouble and manipulation. That's why it is being banned for now. It is the underlying concept of shorting that in my opinion is immoral and wrong, but it is the coordinated targeting of shorting that is the reason for the bans.

 

Now, because I'm in a mood to stir the poo this morning,:

 

Anyone using margin in these current market conditions must have rocks in their heads.

 

I have a pretty good appetite for risk, but there is NO way that I'd be using ANY form of margin on ANY shares in the current market climate, where a 400 point drop on the Dow one night can turn around into a 400 point gain the next, and vice versa.

 

Cash is NOT king, I'd venture to suggest, while selectively getting into the market stands a good chance of being profitable. But not on margin - no way! You could lose your shirt, the car, and the house.

 

Along with banning short selling, they should also have banned CFDs in my 'umble opinion. Too many "players" getting caught out, too many unreal market spreads controlled by market makers like CFD providers, etc.

 

There is a reason why even in the USA, where virtually ALL types of derivatives are allowed, they do NOT allow CFDs.

 

If you want to buy shares, then buy shares. Using CFDs is the equivalent of continuing the credit binge on the credit card.

 

How's that for a stir, all you CFD players?

 

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Could someone clarify a point on short selling for me?

 

I've always assumed that in naked short selling, ie where stock is neither owned nor borrowed, the seller pays a penalty on settlement day because he is unable to settle. The rationale in making this trade being that the profit made is greater than the penalty. ( At some stage the sale is then covered either by a purchase or by borrowing.)

 

Am I correct in this? If so, how is the penalty calculated?

 

Thanks in anticipation.

 

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In reply to: macduffy on Monday 22/09/08 06:59am

A repeat from earlier in the thread:

 

 

http://www.businessspectator.com.au/bs.nsf...YP?OpenDocument

 

6:36 AM Apr 7, 2008

 

 

ALAN KOHLER

The naked truth

 

Every day Australian stockbrokers are phoned by the ASX around 11am and asked if they wouldnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t mind, please, just withdrawing that buy order they made three days ago, because itÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s not going to settle today and the CHESS system has to balance at midday each day.

 

Under the T+3 settlement system, sellers have three days to provide stock to the buyer (and the buyer has three days to cough up the cash).

 

Brokers believe the reason there are failures to settle virtually every day is that hedge funds are gaming the ASX fines with ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“naked short sellingÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ.

 

That is, they are selling short, but not borrowing the stock in time to meet settlement in three days as required.

 

ThatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s because the fine for failing to settle is 0.1 per cent of the amount outstanding, with a floor of $50 and a maximum of $2,000.

 

With almost every trade it is much cheaper to pay the fine than to borrow the stock from a securities lender, so naturally hedge funds just pay the fines. There are no other consequences: it is, for them, just a cost of doing business.

 

For the buying broker it is more than irritating. If a broker buys shares on behalf of a client but does not deliver the scrip in three days, it must give the clientÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s money back. There is no choice in this and it comes off the brokerÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s capital. One day a small broker will go to the wall because a big order did not settle.

 

The buying brokers all agree to remove their orders from CHESS each morning because they know there is no point rocking the boat, and because they know they'll probably have a non-settling hedge fund as a client next time, and theyÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ll be making the phone call. Some small brokers, however, donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t act for hedge funds and therefore donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t sell short.

 

This is the ASXÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s dirty little secret: it is collecting transaction fees on pretend transactions that never settle.

 

The fact that this is called ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“naked short sellingÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ and made to sound kind of official and okay, along with ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“covered short sellingÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ, is beside the point.

 

Terry McCrann wrote in the Weekend Australian on Saturday that naked short selling should simply be banned, no ifs or buts. Selling something you donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t own or havenÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t already borrowed is fundamentally incompatible with market certainty and timed settlement.

 

HeÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s probably right, although it is possible legitimately to short sell ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“nakedÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ it happens all the time. And the regulation of covered short selling is a mess as well.

 

The ASX has called for consultation on the issue of short selling, but this is mostly about the fact that covered short selling is totally undisclosed. ThatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s because the stock is borrowed BEFORE the sale, not after.

 

Naked short selling that does not involve a breach of T+3 simply means borrowing the stock between the sale and the settlement. If the plan is to BUY stock to cover a short sale a day or two after the sale, rather than borrow it, then T+3 means you WILL be late in settling because the person selling it to you will take three days to deliver it.

 

Borrowed stock does not operate on T+3: when you borrow it from a lenderÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s inventory, you get it immediately.

 

If someone sells short with the intention of borrowing the stock before settlement (that is, theyÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢re ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“nakedÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ) it must be disclosed. But if someone borrows the stock before putting in the sell order, then it need not be disclosed because itÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“coveredÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ that is, they own it.

 

And by the way they really do ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“ownÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ it ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ the AMSLA, or Australian Master Securities Lending Agreement ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ confers full title to the stock on the borrower, as clients of Opes Prime have discovered to their dismay. It turns out they lent their shares to Opes under an AMSLA to secure their loans, rather than mortgage them.

 

That is a whole other can of worms, but short selling ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ naked or covered ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ is an absolute joke, and an indictment on the ASX.

 

If itÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s naked short selling and the ASX is simply fining hedge funds that knowingly fail to settle $2,000 a day, then the ASX is itself knowingly participating in a rort.

 

If itÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s covered short selling, that is where the stock is borrowed before the sale but the seller is not disclosing that itÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s short, then the ASX is knowingly participating in another rort: non-disclosure.

 

Either way no ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“consultationÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ is needed: the ASX just needs to clean up its act, or lose the business of regulating the market.

 

 

 

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In reply to: NightStalker on Monday 22/09/08 06:20am

Anyone using margin in these current market conditions must have rocks in their heads

 

Morning NS

I agree taking leverage in the current market volatility is dangerous - if you are unprotected.

Having a low risk/money management plan in place will help, but more importantly putting guaranteed stop losses in place at the time of entry will protect most of your capital. Most providers will place them at a maximum of 5% away from current price. Might cost you 3 times normal commission, but worth it imo.

You were hunting for reply's weren't you?

Thanks for your concern http://www.sharescene.com/html/emoticons/smile.gif

Cheers

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Found these articles in today's e-news. Hope they help with this forum thread/discussion and are of some educational benefit...

 

Investment in reverse: Short-selling explained

 

ABC News

 

Posted September 20, 2008 01:00:00

 

Short-selling, temporarily banned on some stock markets in steps to halt a downward spiral of prices and confidence, is a financial operation which at first sight appears to defy logic.

 

Most people's idea of an investment is to buy an asset which is expected to rise in value, and then pocket the gain generated by that increase or in the form of interest or dividends, or sell it later for a capital gain.

 

In short-selling, however, investors seek to make money from a fall in value.

 

The trick is to borrow the item in question - in most cases company shares, or other securities - from an institution, with the promise of giving it back at a later date.

 

Once the loan has been granted, the investor sells the asset immediately and waits for the price to drop.

 

When, or rather if, that happens, the operator then buys back the assets at the new lower price, returns them to their original owner and pockets the difference.

 

Needless to say, if the price does not fall as expected, the short-seller is in trouble, which is why the technique is risky.

 

In times of market turbulence, as at present in most world markets, short-selling can appear to be a one-way bet and amplify a downward tendency, creating a self-fulfilling price full.

 

Furthermore certain types of short selling are illegal, or at least frowned upon, in most jurisdictions.

 

Examples of such shady dealing are when speculators themselves spread rumours about the future of a stock in order to sell it short.

 

And an arcane technique known as "naked" short-selling, whereby investors manage to sell an asset without even borrowing it, is illegal in most countries, although in normal times it may be difficult to prove that it has actually happened.

 

 

- AFP

 

http://www.abc.net.au/news/stories/2008/09/20/2369729.htm

 

 

---------------------------------------------------------------------------------

 

Short-selling ban begins today

 

ABC News

 

Posted September 22, 2008 06:18:00

 

 

The short-selling ban is expected to buoy the Australian share market

 

The short-selling ban is expected to buoy the Australian share market.

 

The Australian stock market is expected to react favourably to the news that the corporate regulator has banned the practice of short-selling.

 

The practice will no longer be allowed when the stock market opens today.

 

Short selling is the trading of borrowed shares in such a way that the investor makes money when they lose value.

 

The Australian Securities and Investments Commission has announced that short selling of all stocks will not be allowed because it may have been causing unwarranted price fluctuations of stocks.

 

CommSec's chief economist Craig James says the practice should have been banned years ago.

 

"If you don't like a stock you shouldn't be investing in it in the first place, you shouldn't be selling it down and disadvantaging ordinary investors and superannuation holders," he said.

 

Mr James says he sees the ban as a positive move.

 

"There will have to be a little bit of short covering for those companies that have been selling down stocks and that may provide a booster to the share market.

 

"We're looking for the share market to open up 150 points higher but given these significant short selling curbs it may be a fair degree higher."

 

http://www.abc.net.au/news/stories/2008/09/22/2370264.htm

 

 

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John Green's excellent article on page 10 (right hand column) of today's "Australian" is superb, and echoes what I've been saying for ages. He reflects my sentiments exactly.

 

He is an ex-Mac Bank guru himself, and knows what has been going on from the viewpoint of someone who has been in there with the rats.

 

I don't have an online URL for the article - if anyone does, posting it here would be much appreciated.

 

Otherwise, spend a couple of bucks, buy the Oz, and read it - well worth it.

 

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Here is it - I found the link:

 

http://tinyurl.com/4ypa36

 

or in full:

 

http://www.theaustralian.news.com.au/story...55-7583,00.html

 

 

Freeze funds of market rorters

 

 

John M. Green | September 22, 2008

 

SHAME on the federal Government and its market regulators. The bludgeoning our stock market suffered last week wouldn't have been as severe if they had bothered to do earlier what they did last Friday, and even more breathlessly last night, when they banned short selling for the time being.

 

I hate to say I told you so, but six months ago, I advocated an immediate short-term ban on the notorious rorting occurring with short selling (The Australian Financial Review, March 14). This was controversial. Even in this newspaper, business commentator John Durie slammed my suggestion as absolute stupidity (March 17, 2008). Like him, I am a believer in short-selling's positive role in adding market liquidity and aiding price discovery. But unlike Durie and others, such as our Keystone Kop regulators, I was convinced then, and last week's events confirmed my worst fears, that sometimes even good things have to be temporarily curtailed. But I wanted to build the levees before, not after, the first hurricanes.

 

What has happened during the six long, scary months my suggestion was blissfully ignored by our non-regulators? Our market was savaged, some companies were pushed close to the wall and investors lost billions.

 

Last week, Macquarie Group, where I happily used to work until I retired two years ago, and where I and my family still confidently have money on deposit and own shares, was rocked by wilder false rumours than ever before.

 

Only after that, the government and its somnolent regulators decide, gosh yes, let's ban the rorting in shorting. While I applaud them for finally doing it, the shameful six-month delay is a scandal to the many retirees and other investors who lost money, the employees who worried for their jobs and all who endured sleepless nights. If the Government had got off its butt even one week earlier, we might have avoided a great portion of last week's panic and devastation.

 

Perhaps they were embarrassed they could no longer continue to ignore the screamingly obvious once the US and Britain and now others beat them to the punch by banning short selling over there.

 

Yet Australia should have done it before these other markets, not after. Why? Because, as the Australian Securities and Investments Commission finally confessed in its long-overdue action yesterday, our market is far smaller, far less liquid and thus far easier to manipulate. Which is apparently what happened last week.

 

Stories are circulating that some investors decided that last week was the perfect time to trash Macquarie just so they could gouge a sweet few billion dollars out of other people's misery. If the stories are correct, this strategy involved them manipulating the illiquid credit default swap market for Macquarie's debt securities to falsely create the appearance that Macquarie's credit spread was severely widening, which in turn would wrongly fuel the rumour mill about Macquarie's credit-worthiness.

 

This would then lead to the plunge in the stock price we saw, which would mean that the same investors who, I failed to mention, had already shorted the stock, could then soak it up at bargain-basement prices and make their killing.

 

So here's my next idea for our corporate cops. It would be snack-easy for them to discover who had been playing in the credit default market. It would also be easy to discover who had been shorting. And once they connected the dots, they should turn up to these people's glitzy offices, clamp the irons on their cufflinked wrists and freeze every single dollar of their ill-gotten profits and return it to the innocent investors from whom they stole it.

 

With hardball action like that, the rest of the bottom-feeding killer sharks who have been polluting our stockmarket's waters will get the hell out for fear they'll suffer the same fate. Even if they're overseas, it's not too late to freeze their funds in Australian brokers' accounts. But to do that, the corporate cops need to act fast. Which means now, not yet another six months.

 

Eliot Spitzer did this when he was New York's corporate crime-busting attorney-general. But it was actually how Rudy Giuliani initially rose to public attention in New York and the world when he pioneered the tactic in the late 1980s, arresting insider traders in front of the television cameras and getting them to do what became infamously known as the perp walk.

 

Isn't it time, right now, this week, for our corporate cops to snatch a few of these market manipulators, freeze their funds, and get them to do the perp walk here in Australia?

 

Don't hold your breath.

 

John M. Green is a company director and writer, and former investment banker and lawyer.

 

 

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