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Politics : America Under Siege: The End of Innocence -- Ignore unavailable to you. Want to Upgrade?

To: Qone0 who wrote (5550)	9/29/2001 1:35:35 AM
From: Bilow	Read Replies (1) \| Respond to of 27666

Hi Robert Warren; Re: "At the very least the owner of the stock should be compensated for the use of their stock." They are compensated. They get to use a margin account. Re: "How many short sellers lost their Butt shorting CSCO,DELL,MSFT ect. long term from its IPO?" I don't know. How many short sellers made good coin shorting CSCO, DELL, MSFT from their recent peaks? Re: "That`s a bunch of BS. MM`s only closed the spreads because they were forced too decimals." Competition keeps spreads narrow. Eliminating short sales will reduce competition as there will be fewer sellers at the ask. Since short selling is used primarily by short term traders, the effect on spreads will be far greater than would be indicated by the relatively small number of shares that are short. Re: "Any stock that trades heavy volume will have a tight spread. Any stock that is thinly traded will have wide spread." The question is not whether heavily traded stocks will have wider or narrower spreads than heavily traded stocks, the question is what effect does short selling have on spreads. You're not addressing that question here, unless you're making the ridiculous statement that spreads are determined only by the amount of shares traded. Re: "Investors are in control of the markets and the spreads." This is wrong. The market in any given stock is made up of the outstanding limit orders for that stock. The long term investors who place limit orders do not generally place them at prices that are near the current trading price for the stock and consequently their contribution to the structure of the market is negligible. The long term investors who place market orders (and limit buys above the market or limit sells below the market) remove limit orders from the market and that reduces the structure of the market. It should be obvious to anyone who's spent a couple years staring at a level-2 screen that most of the limit orders near the current market price in any well traded security (like MSFT) are daytraders and market makers, not long term investors. Because of this, it is the daytraders and market makers that make the market not investors. If the daytraders and market makers weren't there to provide stability to the market (by making the "spread") the market would trade with a much wider spread. The market is a complicated ecosystem, and every change that is made to the market has difficult to foresee consequences. But the consequences of eliminating short sales is obvious. Half of the (of course short term) trades that market makers enter are entered to the short side. About 1/3 of trades that daytraders enter are entered to the short side. Eliminating shorting will directly eliminate close to half of all market maker and daytrader limit orders. That will increase the spreads in the market. In fact, any change made to the market that decreases the ability of market makers and daytraders to place orders has the effect of making trading less profitable (by decreasing the number of trades that may be made per hour), and this is automatically compensated for in the market by simply increasing the spreads. The simple fact is that without the daytraders and market makers "making the spread" to both sides of the market, there will be fewer shares for sale, and that will increase spreads. Re: "The total number of shares sold short is a small percentage of the total market, and I doubt it has increased much since the market started sliding. -- It has, NASDQ is at an all time high right now. This is CSCO I`ll use it because its a big dog..lol." (1) The total float of shares of CSCO out there is 7.19 billion, so the *93 million shares you're talking about is only 1.3%* of the float, up from 0.7% the year before. This is not significant. (2) Just for the October and November expiry there are options on more than 41 million shares (i.e. 410 thousand open contracts) of CSCO: quote.cboe.com Some of those options are going to be puts purchased by mom and pop, or covered calls sold by mom and pop. The counterparties to those options trades are likely to be options market makers, and they will have to go short carefully calculated numbers of CSCO shares in order to manage their risk. Without short selling by options market makers, they would be unable to provide risk controlled "ask" quotes on puts, for instance. If shorting were eliminated, the spreads on options would go through the roof. Would you like to make options illegal as well as shorting? Heck, why don't we make collecting interest illegal as well. I believe the Bible clearly describes money lending as a sin. Certainly it isn't a good idea to allow Americans to use credit cards. -- Carl

To: Qone0 who wrote (5550)	9/29/2001 3:29:58 AM
From: joseph krinsky	Respond to of 27666

Market Currents: What's with all the short-selling? By Eric Moskowitz Red Herring October 1, 2001 When Frank Zarb, Nasdaq's outgoing chairman, was asked about disturbing trends in the industry, he said short-term trading had been causing a new and undesirable character in the market's behavior, with more speculation than investing and more volatility than is desirable. Short-selling by investors of all stripes continues to grow like a weed: the New York Stock Exchange said last week that short-selling bets rose 1.3 percent from mid-August to September 10, the seventh straight record amount in the past seven months. Total short interest was 5.98 billion shares, up from 5.9 billion the previous month. (Short-sellers borrow stock and sell it, essentially betting the stock's price will fall so they will be able to buy the shares back at a lower price; the profit comes from that spread.) The technology-laden Nasdaq hasn't released its most recent monthly data, but from August 15, 2000, to August 15, 2001, total short interest had risen from 3.04 billion shares to 4.06 billion shares -- a 34 percent jump. WELCOME TO CAPITALISM Yes, one could argue that short-selling has always been a part of the markets. And over the past year, a short-selling bet has been a particularly good one, considering the sharp drop in both the NYSE and Nasdaq markets. Still, the trend, when combined with others like the rise of hedge funds -- which specialize in short-term short and long market bets -- and a dismal corporate earnings picture, leads me to think that market-makers may be getting a little too comfortable with the practice. That doesn't bode well for a market looking to rally. With mergers and acquisitions coming back into vogue this fall -- see Hewlett-Packard's (NYSE: HWP) proposed $26 billion merger with Compaq Computer (NYSE: CPQ) and EchoStar's (Nasdaq: DISH) possible acquisition of General Motors's (NYSE: GM) satellite television unit Hughes Electronics (NYSE: GMH) for $30 billion -- short-selling will only increase. It's a popular hedging strategy for arbitrageurs, who bet on the likelihood of more corporate M&A. One Market Currents reader, Harry Taylor, said it best when he wrote to express what he feared about this trend: "Although a spit in the ocean, my opinion is that short-selling, betting against the hopes of sincere but struggling companies, is a corrosive, non-productive form of speculation ... and a temptation for fraud, manipulation, and worse. Since plenty of money may be made by trading, rather than investing, why wouldn't a trading range become the norm for long periods of time? I fear that the power of whisper and rumor are relatively greater than basic confidence in companies, particularly during times of a recession or downturn." Well said, Harry, and this is an issue we here will be keeping an eye on in the coming months. Remember, just because the boom market bubble has been popped, along with forms of market manipulation associated with the IPO process, doesn't mean Wall Street players aren't trying to find creative ways to make money in a down market. Of course, making money is the name of the game on Wall Street, don't forget -- it's just that we like to make sure the playing field stays level for all investors. redherring.com