I wonder if the ASX and the key market regulator, ASIC, are watching what the US Securities and Exchange Commission is doing with so-called “naked shorting“: that’s when investors sell shares without owning or possessing them in any way.
The SEC isn’t changing the existing rules on naked shorting (which are ignored in the breach). It’s forcing all traders in the companies involved to possess the shares before a short sale can be made.
Shorting is done here and, in most cases in the US, through stock lending: the seller rents the shares from a custodian or big shareholder who doesn’t needing them, sells the shares and then delivers the stock and the deal is netted out and a fee paid to the stock lender.
It’s what tripped up margin lender and broker Tricom earlier this year when the shorting in Allco Equity shares went awry and Tricom couldn’t settle on two occasions because the shares involved were tied up elsewhere.
It’s a hugely profitable deal for custodians and others involved in the stock lending. A report in this morning’s Financial Times in London reveals the huge returns made from this dealing:
Conservative fund management firms and custody banks are making billions of dollars from short-selling by lending stocks to facilitate such trades in exchange for lucrative fees.
Even as short-sellers attract blame for driving big falls in financial stocks, financial services firms – including those targeted by short-sellers – are profiting from the investing strategy.
US prime brokerage firms, most of which are owned by big Wall St banks, will reap revenue of $11bn (£5.5bn) this year, according to a recent study by Tabb Group, a research business.
Given that sort of money, it’s no wonder there’s resistance to the SEC move from brokers and others with their noses in the trough. That’s why we have seen reports in the US business media in the past day from some traders in the US share and options exchanges seeking exemptions for market makers from the SEC order, which will be issued over the weekend and start on Monday night, our time.
The SEC is trying to make it harder for traders to illegally drive down stocks of the mortgage buyers and Wall Street firms and prevent another collapse like Bear Stearns Cos.
Market makers on Wall Street say the new rules would make it harder to short shares and would lower liquidity in some stock, but it will in effect cut their revenues from turning a blind eye to traders who were already going through the motions in a charade.
The SEC is also rooting through Wall Street traders of all sizes for details of deals in Bear Stearns and Lehman Brothers and linking those to analysts’ reports and other comments, and examining emails between traders and clients to try and establish if there was an organised attempt to drive down share prices.
If the SEC can make a decision like this and have it start five days after announcing it, why can’t ASIC and the ASX here bring in similar bans here on such short notice?
As usual Glenn, you read the mainstream media and believe every word of the hogwash they throw at us. The SEC are not “heroes’ in this damn mess, and Chris Cox is no saint. Where the hell was the SEC when all of the rampant mortgage fraud was being banrolled by the big US Investment banks that it is now protecting??? Oh, and before it became clear that these selfsame bastard IBs were now themselves being targetted by naked shorters, the SEC’s stance was that there was no such thing as naked shorting and anyone who said it happened to their company was imagining it or lying!!! But now we have a 180 degree flip! All you have to do is look at the list of banks being protected by the SEC to see that they are the INNER CIRCLE of bastards that caused this whole bloody debt meltdown in the first place. If anything, that inner circle should be thrown to the wolves and made to feel the consequences of what they have done, not protected by a corrupt “regulator”. I mean seriously, how does Goldman Sachs need to be protected from naked shorts? And how does JPM need protecting when it’s their hedgefunds which ORCHESTRATED the looting of Bear via rumours and naked shorting??? The whole thing stinks to high heaven. What the SEC order shows you (besides who the inner circle is), is which banks are going to be allowed to be looted by the bog boyz in the inner-circle. Here are a couple of big banks which are currently being shorted (naked and otherwise) to death: WM, WB, NCC (deservedly so because they too were guilty of bankrolling mortgage fraud). There are also a whole host of smaller regional banks being shorted to death – 90 of them according to the FDIC. Those banks are Mom & Pop community banks guilty only of bankrolling builders who were building in response to what they thought was real demand (not an inner-circle Ponzi scheme). So why are these small regional guys not on the SEC list, huh??? The collapse of IndyMac is going to cost the FDIC about $10 billion, and FDIC’s only got $50 billion to play with in order to insure depositors get back at least some of what will be lost in the coming bankruptcies. It doesn’t take a rocket scientist to see that the FDIC will be broke in a hurry, so I ask again, why are these small regional banks not on the SEC’s hands-off list? The SEC are a bunch of crooks, same as the Aussie regulators and the whole lot of them need to be investigated and thrown in jail, not applauded as heroes. Furthermore, the CEOs of Goldman inner-circle Sachs et al (and their mouthpieces Hank Paulson & Ben Bernanke) also need to be thrown in jail. This debt implosion is not going to be met with realism and sound political and monetary policy until the foxes are no longer running the henhouse.
Naked Shorts? Why not fraudulent representation? Buying and selling has the character of a contract. If one party, at the time of agreement, does not have rights to deal in the property being offered he/she is not capable of fulfilling the contract. End of story. Naked shorts is naked fraud. A bit like claiming ‘the cheque is in the mail’ but worse because if the markets collapse no one’s cheque will be in the mail.