December 10, 2012
[Copyrighted material redacted. Author cites:
Jeffs, Luke. "Fund Managers Seek Alternatives to Automated Trade-study." Reuters. Thomson Reuters, 10 Dec. 2012. Web. 13 Dec. 2012. http://www.reuters.com/article/2012/12/10/financial-funds-automated-idUSL5E8NACLR20121210?feedType=RSS&feedName=marketsNews&rpc=43]
are the banks and brokers ready for the challenge of regulation? doesn't look like it.
do they know that they are naked shortselling? sounds as if they think locates (finding stock to short but not borrowing it) are sufficient to cover them.
locating to borrow stock inflates the amount of that company's stock trading. temporarily, you might say. but even temporarily dumping large blocks of stock on the market will change price for all investors, for the stock market. there is no excuse for manipulating price by artificially increasing the amount of stock on the market. this is a capital outflow from the stock market.
and this is why the fund managers (mutual funds and ETF/exchange traded funds) do not like this trading strategy. they have no interest in driving prices down. they want prices to increase because they OWN the stock.
do the brokers/banks still want to do it? a resounding yes. they do not care about their community of interest, their customers. that is what this survey shows. their interest is in their own profit, not the economy getting better. they do not care about the economy getting worse, in fact they will happily help make the economy worse by driving down the market because they will profit. banks hold charters from the government and many of their customers qualify for FDIC, the insurance backed by the government.
and why should the regulators permit this in the stock market, make rules that enable shortselling? that is a question. the only conclusion that you can come to is that the SEC better represents the banks and brokers over the interest of the investors.
banks and brokers, unchecked, will seek to profit from investors.