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Friday, September 19, 2008

Short Ban: What Does It Mean?

via Aleph Dog: Government Policy Created Too Hastily:

“I have been no fan of naked short selling; I have long argued that the brokers must locate shares before a short sale can be done. Anything less than that is fraud. But I do not support eliminating shorting, even though I almost never do it. What would be the effects of eliminating shorting?

  • No more merger arbitrage funds.
  • No more statistical arbitrage funds.
  • Wait, no more arbitrage?
  • 130/30 funds go away.
  • Other quant funds go away.
  • Barbarian hedge funds that do real research go away.
  • Put option implied volatility goes way up. (A lot depends on whether specialists/market-makers can still short…)
  • Because of put-call parity, call implied volatility goes up as well.
  • Players move to credit default swaps, oh wait, might those get banned as well?
  • Those relying on securities lending income lose out.

Eliminating shorting is stupid. Enforcing getting a locate is smart.”

3 comments:

Hulu said...

Notice the crooks on Wall Street didn't gap up on 450 pts. They opened on a small gap, so the chart will show a green a long green candle.

The game has changed, but the fundalmentals hasn't changed. Sooner than later, common and preferred are going to get wipe out. This bail out is for the bond holders, IMHO.

Ben, you're still DA MAN!!!

sc said...

What a shit show. Delay the pain and make the kids pay for it.

I got out of SKF in premkt. Seeing frozen would have made me puke. UYG and SKF did not perform nearly as well as they should have today. What is with that?

Hearing one structure of RTC II has warrants required in proportion to amount the institution contributes. So we may see some financials f'ed in the a, but we can't short them. What a crock.

Existing shorts were allowed to stay on and TD Waterhouse allowed me to continue my BAC/MER trade.

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