Anytime you are bullish on a stock, make it a point to register your shares.
This is a very simple process that ensures that shares purchased with your
own hard-earned cash cannot be used against you.
Call your broker, or in the case of an online trading firm, contact the
firms customer service department. Tell him that you want to take physical
delivery of your shares, that you want your certificates delivered from the
brokerage house to you, in your own name. Most likely, the broker will tell
you that this is not necessary, that it can't be done, or that it is against
company policy. To be succinct, this is all a bunch of crap. The broker
wants you to keep your shares in "street name" (meaning, held in common in
the name of the brokerage house) to ensure that when you wish to sell your
shares, they get the commission. They may even tell you that if you hold the
stock certificates yourself you cannot easily sell them when the time comes.
This is also not true. All trading accounts have a three-day "grace period"
in which to settle. This means you have three days to deliver your shares to
the firm.
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.
HARLEY11 |
