Undeclared Short Selling - the nightmare truth? Well it appears Rocky was right when he said (in so many words) that MMs can short any number of non-existant shares. But it's more than "almost not fair", I think it should be illegal.
Rocky's post:
techstocks.com .
The following was extracted from
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PROTECTING YOUR INVESTMENT
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At RedHotStocks, we understand the dynamics of the stock market. However, we do not appreciate nor do we approve of the practice of undeclared short-selling. The following is an excerpt from an article from Copley Pacific on that subject. The author defines short selling, explains the negative effects, and outlines a program to help eradicate undeclared short sellers. We at RedHotStocks urge you to read the following and be sure to demand delivery of your shares.
Understanding Undeclared Short Selling and How It May Be Impacting Your Company's Stock
Does it sometimes seem that no matter what you do your stock has trouble climbing in price? If this is the case, your company's stock may be facing downward pressure as a result of undeclared short selling.
Short selling can be divided into two categories, declared and undeclared. Undeclared short selling has damaged many dynamic growth companies. Created by market professionals, the practice consists of creating stock that doesn't exist. It isn't borrowed but created and it creates enormous negative pressure on a stock price.
The mechanics of undeclared short selling are as follows:
Nonexistent stock is sold short. This nonexistent stock increases a company's float. The nonexistent stock makes it difficult for investors to profit from their risk capital speculations. The short sellers make the profit. The practice hurts the public companies, themselves. It adds massive costs to maintaining a market in a stock and it reduces a company's business options.
The basis of declared short selling is borrowed stock. A short seller provides 50% or more of the value of the stock to his or her broker. This is done in a margin account. The margin protects the broker against any increase in the share price. The broker borrows the stock from a depository trust company. He then sells the stock and adds the money to his client's margin account. Later, the client buys stock (covers) to replace this borrowed stock. The difference between the price the client sold the borrowed stock and the price the client paid to replace the borrowed stock (covered) is the profit or loss from the transaction.
Most declared short players are institutional money managers and fringe group market professionals, not small capital public investors who seldom participate. Declared short positions risk being squeezed. If the company can double its share price, the short seller will be forced to increase his margin collateral in order to maintain the short position. At such time, the short seller may elect to buy (cover) the stock instead of adding to his margin. This adds to the upward movement of the share price.
Undeclared short sellers don't borrow stock. They don't margin the sale of their short position. Because they are market insiders they can use various techniques to sell stock short that doesn't exist.
Is there money to be made by undeclared short sellers? Estimates are that undeclared short sellers make multi- millions of dollars annually.
Complaints to regulatory agencies haven't stopped the practice of undeclared short selling. However, one way companies can protect themselves is to recommend to shareholders that they take physical delivery of their stock certificates. When physical delivery of stock certificates is demanded by a significant number of shareholders, the creators of non-existent stock can be squeezed. The short sellers won't have stock certificates to deliver and thus they will be forced to go into the open market to buy the stock. This will cause losses for them and will cause them to move their undeclared short activities elsewhere.
For other ideas on battling professional short sellers, contact Ray Bary at the financial public relations firm of Copley- Pacific at (214) 702-7009.
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This report will be available to the public on May 25, 1997 at redhotstocks.com .
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