Diary

Halting Short Selling

Pej Yous, I do not know how to reply to your Redhot Post above so I shall try here. Short selling creates new shares of stock, shares not issued or authorized by the company. The additional shares expand supply of available shares and reduce market prices. If the company issues a dividend the short seller must pay the dividend himself. If total authorized, issued shares of ABC Company are 1,000 and someone sells short 500 shares (Which are borrowed, in theory), there are now 1,500 shares owned by someone somewhere. The additional problem is that the short sellers often do not actually borrow, nor do they replace any shares they sold short. They get paid dollars for the short sale but they “fail to deliver” (FTD) or move the trade position between multiple accounts and essentially steal money from the market.The short seller gets paid and has near zero cost. Hedge funds generate substantial income from this practice, called “Naked short selling.” Pat Byrnes, CEO of Overstock.com and Sen Bob Bennett of Utah have fought without success to stop the practice for years. Guess what, Hedge Funds are major political donors.Unlike banks, they have no regulation, no rules. They are undermining market integrity. I posted an earlier diary and cited the case of Global Limited which Senator Bennett detailed in Senate hearings. The majority owner of Global Limited tendered for and purchased every existing share of the company. He held every numbered share issued by the company and actually placed the certificates in his drawer. The next two days following his repurchase, over 60,000,000 shares of non-existent, un-issued, Global Limited shares were traded on the public exchanges. These were short sold shares, never borrowed, ghost shares created out of thin air. Somebody, a hedge fund or dealer, sold 60,000,000 shares and got paid for them and never covered. There are other problems with short selling which I will not go into, but this one issue has potential to undermine the markets and destroy public confidence. It is stealing and has been allowed to go on with impunity for years.