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I just tried to make a trade in my account and recieved a message that trading in that ETF (SKF) had been halted. I checked a few more short ETF's and got the same message. Whats going on?
As of 12:01, naked shorts aren't allowed, due to an emergency rule by the SEC.
In essence, when MS dropped today after posting positive earnings, it was realized that the price of it and GS was being driven down by all the vultures using uncovered shorts, driving MS in particular towards insolvency even though it had a strong reserve.
Demanding that shorts play by the old rules is bound to p*** off a bunch of traders, and stop the flow of easy money, but the reality is that their gains were sabotaging any slim hopes of stability, and would end up being paid by taxpayers.
That means the plan to rip the guts out of MS has likely failed, and the stock will rebound some during trading. I like that idea, since I bought a few long shares today at the low. The market will continue to slip, but hopefully at a more orderly pace.
What are "naked shorts"? Sounds like something a finance frat boy came up with.
Often when you short a stock you have to essentially borrow it from someone and usually pay some sort of free to do this. Once you have borrowed the stock you can sell it in the hopes of buying it back later for less. Regardless, a naked short is basically when you don't first borrow the stock.
Often when you short a stock you have to essentially borrow it from someone and usually pay some sort of free to do this. Once you have borrowed the stock you can sell it in the hopes of buying it back later for less. Regardless, a naked short is basically when you don't first borrow the stock.
Ah, thanks humanoid for explaining the "naked" part. Your a pal
Why are naked shorts even allowed? Is there a good reason for this to even exist in the first place?
to make people money. poor SEC management repealed the rules that existed in the first place. i dont know about legality(though its dubious how anyone should legally be able to effect the market with a short without actually having a hand in the asset) but the rules going away just allowed it happen.
anyways, heres a nice summary from another forum talking about a recent jim cramer article on the same subject
For those of you who don't know what NAKED short selling is, it's when you are allowed to a short a stock without actually having brokered a deal to borrow from that stock in order to buy it back later. What eliminating this rule did was allowed a much larger short interest to form -- even of stock that didn't exist. We can argue back and forth about whether it's "actually illegal" but there was no longer any enforcement.
The stock upstick rule prevented massive position slides. In order to short, you had to wait for SOMEONE to buy. This meant the inevitable decline of a stock was merely postponed, but it gave an organization more time to adequately finance its ways out of total collapse. If everyone and his mother wanted to short sell, there had to be at least SOME buyer in order to drive a stock down 40% - 50% in a day through shorting alone.
What Cramer is pointing out is that these rules used to be the norm. It didn't used to be allowed for large conglomerates to drive a stock into the ground through shorting alone, in order to more efficiently destroy a company and encourage a takeover or bankruptcy. These rules were put in place precisely to prevent what has happened over the last few months.
Morgan Stanley should've reported a loss of 750 million from operations. Their reported earnings included an asset sale to raise cash and an accounting scam that allows firms to record fictitious profits when their bonds fall in price.
"$1.4 billion of gains recorded because the credit spreads on its own debt widened."
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