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To: marcos who wrote (24209)	10/26/1999 10:08:00 AM
From: Janice Shell	Read Replies (1) \| Respond to of 26163

Not sure how I feel about this. Yes, it sounds outrageous, but... Again we have the example of the options market. The ability to write naked--long or short--is essential to it... As with "ordinary" naked shortselling, the options writer is taking an enormous risk. He can always be put or called, and that's a real horror.

To: marcos who wrote (24209)	10/27/1999 11:25:00 AM
From: wonk	Read Replies (1) \| Respond to of 26163

...I think a buyer should have the right to expect that shares for sale actually exist... I agree with you. However, the SEC short sale Concept Release is rather thought-provoking, forcing one to consider the built-in bias towards overvaluation of stocks. Ignoring for the moment the non-listed stocks, look how the system is favored for overvaluation: (1) the ability to purchase stocks on margin shifts the demand curve for the particular equity to the right (2) the requirement to borrow shares - that can be called back at any time - fundamentally increases the risk of a short sale, for which there is no commeasurate compensation. 1. Basic microeconomics supply and demand curves take into account how much people are willing to buy at each of the prices along a curve (demand) and how much each are willing to sell along a curve (supply). Where the curves overlap and intersect represents the equilibrium state of the market. This equilibrium point should represent the intrinsic value (as opposed to fair market value) of a share of stock. Day to day fluctuations in perceptions will momentarily cause surpluses and shortages, which are reflected in the day to day price action. However, absent some fundamental change, the price should always return to the equilibrium point, i.e., the intrinsic value per share. But marginability distorts this schedule. Margin is, in effect, an income increase for the universe of potential buyers. By definition, an income increase ceteris parabus shifts the demand curve, resulting in a new equilibrium point. Basically, any stock that can be margined, has a higher price then it would absent margin. 2. Primarily, short sale risk is due to the fact that intrinsic value of the stock can change which will cause a change in the equilibrium price. But the short sale is not a true sale because of the borrow. The owner of the shares can disrupt the natural function of supply and demand by calling back his shares, i.e., a short squeeze. Now I don't think anyone is going to eliminate margin, despite the fact that it distorts the equities market. But what would be fair, is that anyone who purchases an equity on margin, loses their right to call that share back, e.g., move it to a cash account or call the cert, as long as the share is lent. ww