Since we have gotten off into a discussion of shorting and its effects,
I have never understood how a firm can short naked. When they enter an
order to sell the stock, or in the case of a MM accept an order from a
buyer, it still settles three days later. Settlement, as I understand it
occurs with the buying entity or person transfering money and the selling
entity tranfering stock in exchange. How do naked shorts avoid the
settlement?
The firm through whom the buyer clears now holds the stock, if it is in street
name, for the buyer. The company has a record through its transfer agent of
which firms hold how many shares. In this way, they know where proxies, dividends,
annual statements, etc are to go. Shouldn't the companies tranfer agent be able to
detect potential or probable naked shorting?
It also seems to me that the quickest way to bust naked shorts, wherever they
are, is for a holder of the stock to convert it to certificate. If it kills
regular shorts it should mutilate naked shorts.
I presume, although I do not know for sure, that one of the functions of the
exchanges is to keep records of prior transactions: at least as far as which
firms are executing each side of the order. If firm A is selling substantially
more shares than the exchange records reflect that they hold for their customer's
acounts, a BIG red flag should go off. I find it very hard to believe that since
naked shorting is illegal, there are not some kind of computor alarms set up to
detect such imbalances. I know that the exchanges and the SEC frequently monitor
other kinds of trading activity with preset computorized alarms, precisely because
they are illegal.
While there is clearly a significant short interest in SOLV, I do not know of
anyone that has produced any proof that there has been any naked shorting.
Although there has been a lot of suggestion, inuendo, and accusations, there
has been no evidence or proof, that I am aware of. It almost seems as though
"naked shorting" has become a battle cry of explanation for a stocks decline
by those that are too emotionally attached to the company or their investment.
Then again, maybe I just don't understand enough about it. Being a lawyer,
illegal scams and schemes just don't compute in my mind: if it's not legal,
ethical, and moral I can't comprehend it.
While I am at it, what happens with a company that pays dividends? Person A
holds 100 shares of XYZ, person B borrows them and sells them short to person
C. Dividend time comes. I doubt the company will pay A and C. But, I imagine
that both A and C want their dividend. There has to be an easy answer to this.
My guess is that A is SOL (no pun intended) since his shares were loaned out and
C gets paid. If I were A, however, I would be PO'd at being SOL for my V (value)
(pun intended).
Just my thoughts....
Troy McKinney |
