December 12, 2012
this is plain arithmetic.
if 70% of the trading in the stock market is high frequency trading, why would you think that the stock market has not been manipulated? In the United States, high-frequency trading firms represent 2% of the approximately 20,000 firms operating today, but account for 73% of all equity orders volume. http://en.wikipedia.org/wiki/High-frequency_trading
if 50% of the stock market tickets are marked "short" (which does not include those brokers who mark their tickets incorrectly), at least some of those 70% are shorting the market. (see http://www.sec.gov/rules/other/2011/34-64383.pdf ) In the Division's estimation, data made public by certain self-regulatory organizations ("SROs") indicate that orders marked "short" under current regulations account for nearly 50% of listed equity share volume.3
and where are they getting these shares to borrow? are they borrowing them and selling them? obviously, "locates"/locating shares to borrow but not borrowing them is not working to limit the amount of shortselling in the market.
we know that direct edge, for instance, was marking all orders long that they received from international brokers because they signed a SEC consent decree. and if you check FINRA disciplinary actions, you will find a large proportion of brokers violated shortselling marking rules.
why do you think "investors are selling"?
why do you not think the market is being manipulated by the few sellers?
this is what investors see. the market is unfair to them.
see the recent article on the # of order status. those order status are not available to most investors but are available to brokers and informed participants.
these order types are to hide orders from the uninformed investors so that they will be disadvantaged in the market. investors don't need these order types. only daytraders/marketmakers/high frequency traders/shortsellers like these order types. why do they have to be accommodated?
if shortselling were covered within the 3 day settlement period, there would be no equity swaps or failure to deliver, all investors would have their portfolios. yet short interest is frequently expressed in "days to cover" based on the # of shares short divided by the average volume of the stock (which included shortselling volume).
we need reform on the settlement and clearing so that the equities market will be restored. as long as brokers can create an IOU for stock certifficates, we are going to have the counterfeiting of stock certificates, which is then translated into a counterfeiting of $ by leverage. we need financial statements that express the true state of the company. off-balance sheet arrangements should be reported on financials, to regulators.
and if we cannot seem to regulate shortselling because financial people are consistently breaking rules, then perhaps we don't need shortselling in the stock market. shortselling is a parasite on the capital markets but should not be the majority "interest". shortselling is a capital outflow from the stock market, benefits the few by taking the interest of the many. too much shortselling, by necessity, eats up demand and decreases price.