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Time to get tough on short-sellers?

Babcock & Brown, Macquarie Group, Allco Finance – they’ve all suffered at the hands of short-sellers. But now a Federal parliamentary committee is calling for a massive overhaul of the disclosure rules for short-selling.

This potential shake-up is long overdue and could in theory provide banks (and banking jobs) with more protection from these pests. But does it go far enough? Will the Government have the guts to get tough? And should we now actually be looking at banning short-selling?

The committee’s report recommended sweeping changes to annual reporting requirements, proxy voting, access to share registers and the expansion of tracing provisions to include derivative instruments (The Australian).

Babcock & Brown could have done with some of this before it was targeted by those horrible hedge funds earlier this month.

Foreign finance firms – like Bear Stearns, Lehman Brothers and MBIA – have also been victims of hotheaded short-sellers. And the UK’s Financial Services Authority has initiated its own crackdown.

But perhaps Australia should take a lead from Malaysia where the finance ministry reportedly proposed caning as a punishment for abusive shorting (The Economist).

Is that tough enough for you? Or are short-sellers innocent scapegoats, blamed for everything when share prices plummet? Write your own short story below.

Comments (14)

  1. It’s all part of the fun – get a life!

  2. problems at some of these banks go far deeper than any short selling of shares, which just expose weaknesses already there – give these guys a break

  3. From economist “However, since the 1970s the best-known official studies in the West have shown that short-selling is broadly a force for good, aiding price discovery and preventing shares from becoming overvalued” – do we really wanna ban them?????

  4. It will take so long for the gov to bring in these regulations that nothing will change for years

  5. Bob, that’s pretty much true – ironically short-selling can make share values more realistic in the long-term, even if companies feel the pain once in a while

  6. Regardless of the merits out the outcome, short-sellers have more balls and are probably more skilled that most of us out there…the stakes are high for them

  7. shortselling is worth it for the comedy value of seeing banks and large companies grovel – power to the shortseller!

  8. yeah, great comedy value if a ss helps to bring down the bank you’re working for! lock these monkeys in a zoo

  9. The government and ASIC should overhaul the whole system of share market regulation in Australia of which short selling should be one of the addressable items.Here are some suggestions:

    1. Prohibit the practice of designated super funds lending their shares to anyone. HF’s then short the very stocks they hold in those superannuation funds! Allowing offshore funds to borrow our blue chip shares relatively tax free and then send our blue chip stocks & national savings lower borders on negligence on behalf of our regulators.

    2. Full disclosure on Naked shorts on screen, to distinguish real selling from short selling & from naked short selling.

    3. The ASX as a regulator and a conflicted market participant is an absolute disgrace. ASX say there are no incidents therefore our market is clean. Ostriches in the sand.I can look at many ASX100 stocks and see market manipulation, naked short selling, nearly everyday. As for outside the ASX100 its a party. Do whatever you want, inside trade, manipulate, pump and dump, mark the close do whatever you want !

    4. ASIC shld be given more resources & power. Penalties shld be tripled for some offences. Hong Kong is much stricter than us!

  10. Short selling and Long buying are both parts of the capitalist market models, remember markets and capitalism are a two way street (curve).

    Why blame the “shorters” for bad decisions and over runs on credit and the subsequent credit crunch, the best is yet to come?

    Why it is that people cry foul when a market goes against them…..( or against their greed and at the same time fueling their fear, if one does not like Capitalism and a Capitalistic society, one is always welcome to live else where perhaps Malaysia or Iran?

    When life is easy and the markets are all bid, no one ever complains…
    without night we would not have day…. !

    GET A GRIP or better still go short financial’s and whilst at it go long energies.

    What will people say when the housing market in Australia is net short, more value in abolishing negative gearing on shares and houses than beating on on legitimate traders.

    Professional Trader (Shorter too) Reply
  11. The next step will be to punish investors for withdrawing their funds from the market…

  12. Investing is the speculative provision of funds to support companies to develop and become productive, thereby providing returns to investors [win-win]. If the enterprise fails the investor loses value. Shorting is really disinvestment – deliberately smashing value in companies for investors, thereby deterring investment. Carried through to its logical conclusion is it OK for all legitimate business to cease through fear of being smashed by disinvestors.

    However, the biggest issue I have with short selling is the ABSOLUTE LACK OF TRANSPARENCY & PUBLIC ACCOUNTABILITY associated with it. I am yet to have anyone adequately explain how covered shorts do not allow for tax evasion – domestic & international.

    I have less issue with naked shorting as long as the rules are the same for everyone – every investor should have instant access to information about who is doing what. Otherwise in the minds of investors practices such as insider trading / covered shorting / market manipulation are at play – creating a sense of unfairness & fear.

    The commodities boom should have seen our boarse deliver better returns to investors who took risks. Its performance is a national disgrace.

  13. No one should be allowed to sell something they do not own.”Borrowing” someone else’s shares in massive quantities then dumping them on the market is certain to drive the price down. Buy them back at the reduced price, hand them back to the broker for a fee then pocket the difference, it is all too easy. To end this destructive practice all that is required is legislation to make borrowing shares illegal, they must be bought on market and not allowed to be sold until money has changed hands. The greedy outfits that practice “shorting” are destroying ordinary peoples superannuation and must be stopped, with heavy penalties applied for breaking the rules.

  14. Come on guys we all know that short sellers are saints out to protect the profits of their own accts or fund assets. There’s seldom a quicker way to garner profits while the uneducated masses sell under duress. Then when the price per share is low enough they buy and ride it to a higher selling price. Oh, i’ts a beautiful SCAM and it’s legal. Ever wonder why there is so little clarity as to whom has shorted shares and by how much on a regular basis. Remaining in the dark is a great asset for those so inclined. I prefer to gain profits the harder old fashioned way – when the pps goes up!!! That may make me a dolt but I do sleep peacefully each night. Ta, ta……RTB

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