Australia joins short selling ban - exemption on trades back to 09/22/08

[Slimprofits]

ASIC tweaks short-sale ban

The Australian stock exchange was thrown into confusion this morning after an extraordinary last minute decision by the securities regulator to ban covered short selling rattled fund managers who had lent shares as part of regular business last week.

The regular market opening was delayed by nearly one hour as the Australian Securities Exchange waited for the Australian Securities and Investment Commission to tweak the ban and exempt the existing hedge positions.

The commission had imposed a total ban on all forms of short sales across the entire market, going a step further than other regulators who had banned short sale only on certain stocks.

The commission said in a statement "that the prohibitions on covered short sales will not apply to hedging a position that was taken by an entity prior to 22 September 2008....''

"We've never seen a market without short selling. We're all flying in the dark,'' said Morgan Stanley equity strategist Gerard Minack.

[GRG55]

Re: Australia joins short selling ban - exemption on trades back to 09/22/08

ASIC tweaks short-sale ban

As does...

• Germany restricts short selling of financials
• Netherlands bans short-selling
• Taiwan limits short-selling
• Australian Regulator Extends Ban to 'Covered' Short Selling
• Dutch ban 'naked' short selling for 3 months
• Irish Stock Exchange moves to block short-selling
• Dubai condemns short-selling of shares

Most contagions are just that...contageous. The US catches a cold, the rest of the world is stricken with Ebola.

Above list courtesy of Barry Ritholtz's Big Picture blog

[Jim Nickerson]

Re: Australia joins short selling ban - exemption on trades back to 09/22/08

As does...

• Germany restricts short selling of financials
• Netherlands bans short-selling
• Taiwan limits short-selling
• Australian Regulator Extends Ban to 'Covered' Short Selling
• Dutch ban 'naked' short selling for 3 months
• Irish Stock Exchange moves to block short-selling
• Dubai condemns short-selling of shares

Most contagions are just that...contageous. The US catches a cold, the rest of the world is stricken with Ebola.

Above list courtesy of Barry Ritholtz's Big Picture blog

Unless it changes between now and 9AM EDT US, the present ban on the 790-odd stocks in US is set to expire on the close of 10/2/08, unless extended between tomorrow and then. I didn't and won't read all those links to see when the bans elsewhere expire and what are provisions for their extensions.

To me the most important question about these bans is what will happen when they are finally removed? I don't guess short selling is planned to be banned forever, or is it?


These are not interesting times in which we live, these times are crazy beyond my small imagination.

[The Outback Oracle]

Re: Australia joins short selling ban - exemption on trades back to 09/22/08

Yeah right!!!!! Aus thinks for itself again! All these bastards on ASIC must watch American comedy!!!! This is getting really sick!! So.........the new rule is........markets must, always and everywhere go up, or we're fucked!

[Jim Nickerson]

Re: Australia joins short selling ban - exemption on trades back to 09/22/08

http://bespokeinvest.typepad.com/bespoke/

Bloomberg's "No Short" Index

Bloomberg has recently created an index of US Restricted Short Sell stocks that measures the performance of stocks on the SEC's "No Short" list. As shown below, the index rose sharply (11.82%) on the first day of trading following the implementation of the short ban. Yesterday, the index declined by 6.3%, however, and it's down another 25 bps today. It will be interesting to follow this index over the next couple of weeks, and especially after the ban is eliminated on October 2nd.

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.


JN comment: I can't yet find where this new index is on Bloomberg.

[Jim Nickerson]

Re: Australia joins short selling ban - exemption on trades back to 09/22/08

Here's an explanation I hadn't seen regarding the bans on short sales.

http://bespokeinvest.typepad.com/bespoke/

Since last week's introduction of potential solutions for the financial crisis, there has been a lot of talk regarding the unintended consequences of these measures. For example, some have argued that while the ban on short selling for various financial stocks was intended to help support stock prices, the end result will be to lower prices as liquidity in the marketplace is reduced, causing capital to flow out of the sector.

Additionally, given the fact that the size of the bailout is estimated at $700 billion, many expect to see higher interest rates and inflation down the road. However, as shown in the charts below, long-term interest rates in the US and other major markets remain low, especially when compared to the last time the US government bailed out the financial sector. Of the six countries highlighted below, Australia is the only country where the yield on its 10-year note is even above 5%.

[Jim Nickerson]

Re: Australia joins short selling ban - exemption on trades back to 09/22/08

http://bespokeinvest.typepad.com/bespoke/

9/23/08

With the "No Short" rule in place, the 68 stocks in the S&P 1500 Bank group went down an average of 11.56% yesterday. At the same time, 88% of the stocks in the group did less than their average 30-day volumes yesterday, while nearly 25% did less than half! With the shorts now out of the market temporarily, it looks like volume is drying up, buyers have retreated (why buy now when we know the shorts will be back?), and only the sellers are left. Below we highlight the 20 worst performing S&P 1500 Bank stocks yesterday.

It looks as though the appropriate ban would have been to ban stocks going down.

[Supercilious]

Re: Australia joins short selling ban - exemption on trades back to 09/22/08

Here's an explanation I hadn't seen regarding the bans on short sales.

http://bespokeinvest.typepad.com/bespoke/

Actually, there is more. At least on Wall Street (where the Fed, SEC, DTTC, market makers and obscure dark hedgies are in collusion) this ban on short selling is an invitation to fraud. If you understands how the clearing takes place in the market makers -DTTC system, this ban on short sales is a joke and does only three things;
- leaves the market dry of liquidity (with all short sellers gone)
- destroys the low-cover-limit negative feedback provided by short seller ( which have usually a predetermined limit for buy-to -cover orders
- creates a monopoly for short selling restricted only to market makers in collusion with big hedgies, while the SEC slips, DTTC performs a subroutine self check etc .

Look if Joe 6 Pack sees his 100 shares at $100/share on his e-trade screen he really believes that he has shares. but those are numbers on the screen , not shares delivered to his house. His shares can be long time gone and used for a massive dump attack.

A hedge fund can sell them after "lending' them form the market maker. And as long as this remains inside the stock pool of the market maker, it would take a vigorous SEC investigation inside the market maker.

When J6P returns from lunch an see his shares at $10 share he clicks fast on the Seeel , Seeel , Seeel button, but his shares were already sold. No problem because the transaction can be internalized. $1000 from the hedgie is credited to J6P and the poor hombre is happy that he has lost only 90% of his money... and if you were using actual cash in this transaction you would find (according to the serial numbers of the bills) those 90% of his money (the $9000 loss ) taking a sun bath in the account box of the hedgie ...;)

All this time there was no need for any buy-to-cover , there would be no cover support, therefore the stock of that company can go in free fall because nobody is buying.

This is the correct definition of a ban on short selling for Wall Street ...

I just cannot see how a few big hedgies would pass such a wonderful opportunity for profitable fraud....

[Jim Nickerson]

US ban on short-selling extended to Oct. 8 2008

SEC Ban on Short-Selling of Financial Stocks to Expire Oct. 8

By Jesse Westbrook http://www.bloomberg.com/apps/news?p...d=ak27vmONuUpg

Oct. 3 (Bloomberg) -- The U.S. Securities and Exchange Commission's ban on short-selling of financial stocks will end next week, following the government's approval of a $700 billion financial industry rescue package.
The prohibition on betting on a decline in share prices will expire Oct. 8, the SEC said in a statement today. The SEC said it imposed the ban to calm markets and give Congress and the White House time to adopt legislation that lets the Treasury purchase illiquid assets that are burdening banks.

The SEC took on short-selling last month after Morgan Stanley Chief Executive Officer John Mack and New York Democratic Senator Charles Schumer blamed the practice for driving companies to the brink of collapse. Hedge funds opposed the ban, arguing that regulators were blaming traders for companies' mismanagement and the banking industry's over- concentration in mortgage-backed securities that lost value after credit markets froze last year.

President George W. Bush signed the economic bailout into law today hours after the House passed the measure. The Senate approved the legislation Oct. 1.

Short-sellers try to profit by betting stock prices will fall. In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
Last Updated: October 3, 2008 17:41 EDT

What will happen when this ban expires? The market rallied early Friday as the last ban had supposedly expired I think at midnight on 10/2--but probably the SEC renewed it so that short-selling remained banned. Then the "good news" of congressional and senatorial passage and Bush signing of the "bailout package" , which so many pundits said had to happen, and the markets moved to new lows. Glad they rushed to get that shit into law, after diddling while all this mess was being generated.

The two slimy, spineless, useless TX senators voted for the bailout.

Here's a decent article by P Schiff http://www.safehaven.com/article-11455.htm reflecting his perceptions on all this crap.

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The moral hazard implicit in the government's willingness to re-write troubled mortgages ensures that the plan will spark a wave of new delinquencies by borrowers looking to cash in on the windfall. Since troubled loans will no longer be foreclosed by lenders but instead sold to the government, the rational choice for many homeowners will be to stop making their mortgage payments and wait for a better deal from the government. This reality will eventually push the cost of this bailout well above $2 trillion.
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In fact, the Senate version of the bailout bill, which authorizes a suspension of mark- to-market, also increases the dollar limit on FDIC insured deposits from $100,000 to $250,000 (with no extra money budgeted to fund the increased taxpayer liability). Only in Washington would a bill pass which simultaneous makes banks more likely to fail while increasing taxpayer exposure when they do!