Reg SHO and Naked Short Selling
Posted by Frugal on April 3rd, 2007
I saw this at Bloomberg video clip at financialsense about naked short selling.
This is why I always hold my shares in Cash Account (even though my account is a marginable account). Even though this is not helpful due to all the violations of FTD (failed-to-deliever), at least I don’t hand these shares to the shorts.
This is also why I advise people to get their physical gold/silver delivered because that is the most secure and best way to combat the shorts. In stock market, the FTDs can go on forever. But in the physical market, it will force the physical delivery harder and delayed.
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April 3rd, 2007 at 7:04 am
What do you mean get your gold/silver delivered? Physically?
April 3rd, 2007 at 7:58 am
Yes. Physically to your home.
April 3rd, 2007 at 7:59 am
The next best choice is probably CEF in my opinion, not GLD nor SLV.
April 3rd, 2007 at 9:54 am
Are you insuring your gold and silver? I mean to have them delivered you’re potentially trading FTD risk for theft risk. I’m not sure if I like the idea of physically holding that much gold and solver at home. Though I do actually think it almost always makes sense to hold some physical valuables just in case (not that I do.)
April 4th, 2007 at 2:23 am
Dong,
I don’t put all of my physical PMs at one location to reduce my risk (by diversification). If you have some large amount, you probably should insure it.
In any case, I don’t have much physical PMs at home right now. When I do, I will worry about those later.
April 4th, 2007 at 1:50 pm
Frugal,
I don’t see what hte problem is – the show didn’t discuss what happens for the buyer, or how these trades are finally settled. It just used standard “hollywood” drama building. All of the companies that were heavily shorted that were listed, including Delta, Overstock, and the like were quite deserving of shorting. What was particularly poor was the suggestion that short sales hurt the company – the equity is already in the business – price of the shares in the capital markets are not an excuse for poor management (as in the case of overstock). If he thinks the shares are so cheap, he should buy them, then demand delivery. The FTD is allowed by the buyers (but if they mentioned this, they would have no story). Its total BS.
April 7th, 2007 at 4:19 am
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April 8th, 2007 at 11:05 pm
I don’t know why you’d be worried about people being able to borrow your shares. I only use margin accounts for stocks.
April 21st, 2007 at 7:46 am
Doug,
You didn’t understand FTD problem AT ALL. FTD is NOT allowed by the stock buyers. They are close to NEVER settled. How can you sell something and don’t deliver them for possibly years? It is simply illegal by any standards. But it is allowed by the stock exchange market.
Since all prices in a capitalistic society is based upon supply and demand, when you create “infinite” supply through the created phantom shares, and the demand is not infinite, naturally the price of the “good” (or the stock) in the case of FTD can go down to zero.
The exchange requires 3 days settlement period for most normal people, but allowed these FTD to go on for YEARS and YEARS. BY manipulating supply/demand, the stock price is naturally lower than it can be.
I suggest you studied this problem further at other googled sources.
April 21st, 2007 at 7:48 am
Mubin Panjwani,
I only exchange link with bloggers. The rest is usually paying links.
April 21st, 2007 at 7:52 am
Moom,
When you have stocks in your margin account, they are bought, but can be loaned out. When they are loaned out, it’s like they were never bought in the first place, since the net supply/demand of shares is zero.
I don’t need any margin power, and I have very large concentrated positions in specific sectors. I prefer to buy my shares and KEEP my shares.