Skip to comments.Overstock CEO Comments on SEC's New Rules Against Naked Short Selling
Posted on 09/18/2008 5:59:35 AM PDT by devane617
Overstock.com, Inc. (Nasdaq: OSTK - News) chairman and CEO Patrick M. Byrne comments on the SEC's September 17, 2008 press release (see http://www.sec.gov/news/press/2008/2008-204.htm) that purports to protect investors against naked short selling. Dr. Byrne commented, "At the core of the SEC announcement is a decision that if a hedge fund naked shorts a stock, its broker isn't supposed to let them naked short again. But guess what: they were not supposed to naked short in the first place.
(Excerpt) Read more at biz.yahoo.com ...
My understanding is that you believe the stock will sell lower in the future, but how does that translate into a profit?
Let's say you borrow a stock from someone and sell it for $20. You have $20 in your pocket but you owe that stock. Later, you buy the stock on the market for $15 and return it to the original owner and you are left with $5 as profit. The most you can make is the original value of the stock if the value drops to $0 before you buy it and return it. Your loss is unlimited because the stock could go up and up and up while you are waiting to buy it to return it to the original owner.
I have no idea how the naked selling works because how can the purchaser own the stock without the share actually existing. I also don't know what happens if the original owner wants to sell the stock you have borrowed and how he gets dividends if he doesn't have it anymore.
Ok, thanks, I had a few concepts wrong. Sorry everybody.
Shorting is nothing more than betting the stock will go down.
Normal shorting is putting a SELL order in with a broker on a stock you don't have in your portfolio. The Broker then has to place the order and "borrow" those shares from some source. If the stock goes down then you "BUY" the shares and you make money. The Broker returns the shares and we are back to square one and hopefully you made a profit.
Naked Shorting is "skipping the borrowing" part. In essence it can place more shares of stock in play than are available. It causes BIG players to be able to control the market without alot of the risk because they can sorta wrest control from the legal shareholders and put the stock in play.
“the new rule will have little effect if the sec does not pursue the rule-breakers”
It’s easier to go after Martha Stewart than your buddies.
Toss in the removal of the uptick rule, and the piling on by these vultures is that much easier. Interesting to see Morgan Stanley’s CEO crying to the SEC yesterday, when his stock was pounced on, bc MS traders probably do it all the time
Its a rampant practice. I've seen collusion practiced right out in the open on Yahoo Stock Message Boards. I've even forwarded the links to the SEC and the same people can be found posting the same collusive crap to this day.
The SEC couldn't care less.
someone stated that the IBanks have destroyed most of their targets, and are now going after each other. that is when the problems started...vultures is correct.
yahoo should be made to either: shut down those boards, or police them. there is so much invalid, openly illegal, stuff posted on those boards that it is incredible. All Yahoo wants is the click count.
Well that's good, because that is naked shorting, you don't have control over the stock, which is also illegal. So you are smart enough to recognize illegality as 'shady'. But what you said was shorting was 'shady' and in that you are FOS.
Sorry if Im wrong, its just me.
Your name is wrong? Should've been sorry.
It works because brokerage houses cheat. Transactions go through without shares being delivered. There is no certificate to back up the short sale.
I also don't know what happens if the original owner wants to sell the stock you have borrowed and how he gets dividends if he doesn't have it anymore.
There is a process called a buy-in. At any time, the brokerage can force you to cover the shorted stock if the owner "wants it back" (or the broker for whatever reason can't pretend you have a legit sale anymore, such as an audit in conjunction with litigation). The broker buys the stock in the open market at the market price and the customer is forced to cover whether he likes it or not. Part of the risk of shorting.
I am under the impression that most naked shorting is done in stocks that do not pay dividends. If a dividend is due, I would guess that it is simply paid regardless of whether it was a legit sale but since I have never done a naked short, I really can't confirm this.
Why is it shady? It's the same as a mortgage or a car loan. They lend you dollars now and you pay them back later. In a short transaction you borrow shares now and pay them back later. What's shady about that?
What happened in 1995?
That year the Dow went up 1300 points. Previously it had taken the Dow 5 years to move up that many points.
from 70 - 82 it stayed between 600 and 1000.
In 82- 87 it went to 2000
In 88 - 95 it went from 2000 to 3800
In 1995 it went from 3800 to 5100 IN ONE YEAR. ...OFF TO THE RACES AFTER THAT.
Does anybody know what happened in 1995?
How is it ‘technically legal’ for brokers not to have to locate shares for shorting? I would like to see a reference to that claim.
The Republicans controlled congress for the first time in 40 years?
Is it the same as if you buy one of those shorting ETFs like...
ProShares UltraShort FTSE/Zinhua China 25 FXP or something like that?
“Does anybody know what happened in 1995?”
The Republicans assumed control of Congress for the first time in 40 years. And there have been several changes in regulations related to financial markets, most all of the served to increase the volatility of markets.
But what is your answer?
I didn’t remember. Very interesting. Thanks all.
Naked shorting is trading stock that you do not have. This is like buying stock with money you do not have...but only if the price immediately goes up and you can sell for a profit, otherwise the deal is off.