The Patrick Byrne Award for Fighting Market Manipulation: Christopher Cox
by Johnny Debacle
Topher Cox, head of the SEC and also a Jedi knight, has issued an order aimed at crushing the short-sellers and SITH lords who are trying to destroy the GSEs and some of the major investment banks. That order is the requirement that a trader must pre-borrow shares before shorting certain stocks.
SEC Chairman Christopher Cox said the SEC would institute an emergency order requiring any traders to pre-borrow stock before shorting Fannie Mae and Freddie Mac, the embattled government-sponsored entities that own more than half the nation’s mortgages. It would also apply to the stocks of Lehman Brothers, Goldman Sachs, Merrill Lynch and Morgan Stanley. The order is a near-term fix and will expire in 30 days.
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Wall Street has been calling for the SEC to address short-selling, which some believe is contributing to market volatility and could be used to manipulate shares of financial stocks.
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Under current rules, a short-seller must locate shares to borrow, which are later replaced with stock bought at a lower price. Some market watchers have been concerned that traders were borrowing the same shares from the same lender over and over, and driving down stock prices.
Recommendation: We’re sure that this regulation is very important and will fix all the underlying problems. The root of everything isn’t awful management, poorly calculated risk assumptions, no-no, just like with Overstock (NASDAQ: OSTK), the real problem is that the stock price is low and that’s due to market manipulation and that large Death Star that the market manipulators have been using to target certain financial stocks. Christopher Cox, you are the winner of the esteemed Patrick Byrne Award for Fighting Market Manipulation.
Be sure to pre-borrow Christopher Cox shares before you short him.
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I’ll take it as a compliment that Cox (SEC, et al) are only 3.5 months behind since we (inadvertantly) pointed out the connection. Where the hell is Biovail in all of this, I’m sure they’re gearing up for (another failed attempt) at vindication versus the evil short sellers!
Hey come on guys, you are missing the next great card trick by the morally bankrupt who want us all to have the same “deep values”! Load up on Freddie and Fannie debt and when you force the government to take it on its books, you make brazillions from the spread contraction! Now don’t be saying that this card trick is dead man’s hand ..or your site will be pulled from circulation!
These SEC yahoos are so far behind the times, it’s scary! If you just do away with the market altogether and allow geniuses like Christopher Cocks to SET the price where such geniuses as Paulson and Barenanke think it ought to be, you don’t have to have any short sale rules at all! After all, since shorts (who are putting their money where their mouth is) don’t know what the fair value is, unlike the regulators who have no skin in the game, then surely we must send the shorts to to regulatory gulag. Why go through all this aggravation just to avoid telling people the simple truths: Price controls are good and always work out well. The Soviet Union and Zimbabwe are shining examples. Set the price, don’t let people trade at any other price and be done with it! Surely, that’s the answer.
Next thing you know, it’ll be illegal to exceed the speed limit.
“Next thing you know, it’ll be illegal to exceed the speed limit.”
Yep. And the speed limit is Zero!
Isn’t it most amusing that the first to be protected are the very facilitators of the fraud? Who do you think owns these fails? The financial institutions and they are the first to receive the executive order for relief from abuse.
http://www.deepcapture.com
Of course this isn’t going to solve the underlying problems, but aren’t you being a bit harsh on CC?
The extent to which naked shorts are causing the current declines is probably overstated, but it is supposed to be illegal, isn’t it?
It seems as though the terms “Naked shorting”, “shorting”, “speculation” and “manipulation” are being used almost interchangeably these days.
naked shorting is only illegal if you’re not a registered market maker. A registered market maker is not required to locate first.
But making naked shorting illegal is arbitrary BS. All it does is reduce liquidity. I’ve seen many illiquid stocks for which no shares were available rally as much as 20% (well above fair) on that illiquidity alone – and then drop like a rock when the bids disappear. Without competitors, the specialist has nobody’s offer to better. Thus, he can execute grandma’s market order anywhere he wants. How is making people overpay so much this better than allowing unlimited shorting? Further, why would anyone risk their own money shorting a stock which they know is already undervalued? Keeping in mind that the risk of shorting is unlimited losses and the risk for a long position is only the difference between the stock price and zero.
Selling a stock short is simply an opinion that the real value of a stock is below where it’s trading now. Undoubtedly, shorting has helped lead to lower stock prices. This only serves to keep markets efficient. if the real value of the stock is lower, then why would you want to buy it higher?
This new regulation will do little. Most shorting will not be effected. There are always ways to take bearish positions on firms even if shorting is prohibited.
Matt,
That’s true for stocks for which there are options. It’s not true for stocks which are so illiquid, there are no options. Those stocks will simply see a reduction in liquidity and all the associated BS that comes with that.
Unfortunately, because they’re so illiquid they also have a mainly retail following. So, the only ones who will get hurt by restrictions on short sales is the grandmas of the world – the very people the SEC is supposed to be “protecting” from big bad Wall Street Wolves. The only winners are the specialists in the stocks – the big bad WWW.
For stocks effected by these locate rules that do have options, expect to pay more for your puts. Since the options MM won’t be able to hedge his short put position as easily, you’ll be paying a higher premium. The question is, what are we meant to be getting in exchange for the added costs associated with restrictions on shorting? An artificially high price for the effected stocks. How is this so different from price controls?
I mainly trade in international options and ETF’s, both sides of the market, doubt this applies to me as much. HOWEVER, isn’t the whole regulation of the downside of the market but not the upside just a bit one sided and delusional? Do not the markets have TWO sides: upside and downside. And did we not have a similar problems by not thinking of the downside and looking at the RE market as only having the upside and conveniently ignoring the fact that free markets are cyclical? Isn’t that the root of the problem to begin with? We learned nothing, lets perpetuate it further… And isn’t regulating one side of the market, in effect, contradictory to a FREE MARKET and creating an imbalance?
And to the government taking on the MacDebt: If you are a mess and you can’t fix yourself, why in the world would you take on more of a mess? You can’t fix it, you don’t know how, self destructive behavior is schizophrenic to say the least. The US government is on shaky ground with internal problems threating its structural integrity, for it to take on even more responsibility would quicken its collapse.
Right, Strattie. You make good points. Price controls on the downside and price controls on the upside means that the regulators know something the millions of participants in the market don’t know – the real price. So, if they know so much, why not just set the price? Worked so well in command economies like the Soviet Union, why not try it here?
And just as the Palpatine tricked the Jedi to believe he was the leader of hope and the free world so will ToFAH, in the final battle it will be revealed that he is the disruption, the Sith Lord YoD-imon has sensed in the force… PREPARE FOR EPISODES 4, 5, 6 and books to follow!!!!!
Sounds like it will slow down the process of shorting, but not much more. Doesn’t really sound one-sided since it only targets “naked” shorts — which should be banned. After all, there are no naked longs. When you buy a share long you own it. The shorts really should not be able to sell an imaginary share that does not exist.