Hmmmmmmmm ..... seems to me that short selling and the extended use of derivatives just creates a short term trading market ..... great for a few traders short term but doesn't go anywhere. May as well go down the casino and play roulette or blackjack.

ains




FSA says no to short selling controls
Anthony Hilton, Financial Editor, Evening Standard
30 April 2003

HE Financial Services Authority* has come down strongly against new controls on short selling* in the UK market but is to promote more transparency and disclosure of information so market participants have a better feel for what is going on.

In what is called a feedback statement published today, the regulator says there is no case for artificial constraints on short selling and has no proposals for a ban or a more restrictive regime. Instead it endorses the view laid out in a discussion document published last autumn which says that short selling is a legitimate investment activity which supports an efficient market.

The conclusion may upset some executives and fund managers* who believe share prices were undermined by hedge fund short selling last year, and may not find favour either with some European regulators who believe short selling should be controlled or banned.


The FSA's view, however, is that market volatility in jurisdictions where short selling is controlled is even greater than it is in London, so there is no evidence that short selling adds to instability.

It says further that even to introduce a market reporting regime for short selling would cost between 30m and 50m to set up and there is no evidence that enough people want the system to justify the cost.




2003 Associated Newspapers Ltd. All rights reserved.

It's good to see the interest in the situation



May 01, 2003

Watchdog opts for greater disclosure on short-selling
By Antonia Senior TIMES



TIGHT controls on shortselling, the controversial practice of making money from falling share prices, have been rejected by the Financial Services Authority in favour of greater disclosure.
Information on stocklending provided by CrestCo, the company that runs the UK equity settlement systems, will be published from this summer as a proxy indicator of the level and nature of short-selling.

The FSA dismissed calls for a stricter regime that would require short-sellers to disclose their individual transactions after it concluded that the practice was not disruptive and added to market efficiency.

The watchdog decided to investigate whether there was a need for tighter controls last autumn after a number of financial services companies complained that hedge funds were forcing down their share prices through short-selling.Gay Huey Evans, director of markets and exchange at the FSA, said: The consultation confirmed our view that there was no need to impose additional controls on short-selling, but that greater transparency would be valuable.

The regulator insisted that the present market abuse regime would weed out manipulative practices, despite claims from some financial services companies last year that that their shares were deliberately forced down by hedge funds.

David Prosser, group chief executive of Legal & General, said: Its very much a light touch. We would have preferred greater transparency, but its a first step.

Mr Prosser said that short selling had increased volatility in the markets over the past year.In a bear market you see a proliferation of hedge funds and derivatives trading and long-term investors account for a small amount of the activity in the market, he said. To my mind that has meant more volatility.

The FSA set out options for tighter controls after calls from financial services chiefs, including Mr Prosser, in its consultation paper in October.

One option looked at forcing market players to declare short positions, but it was concluded that an estimated cost of 50 million to set up a strict control regime was too expensive for the benefits gained.

But the watchdog has yet to rule out entirely a limited disclosure regime, which would force sellers to reveal any short positions that comprise more than 1 per cent of the target companys value.

The Hong Kong market has introduced a limited disclosure regime and the FSA is monitoring the success of the system.

Under the new transparency drive, CrestCo, will also publish data on securities with high levels of settlement failures, to allow investors to spot potential problems developing in stocks.

The regulator is also keen to push brokers to take on responsibility for informing clients of problems in settlement with particular stocks, in a move that could be enforced through new regulations if the market does not take the lead. The CrestCo data on stock lending will be available monthly free of charge, and daily to paying subscribers. At present no figures are kept on the volumes of stock lending in the UK market. This makes it difficult to tell if a stock is losing value because investors are taking a view on its growth prospects or if it is being targeted by short-sellers.

As a pupil I studied Psychology and you are whats termed, a sour prick Ains. Prices would get out od control without short selling, that cant be good can it? what about the added liquidity? not to mention the fact that ppl have been short selling for nearly a century, and its just been thrust to the fore by your nemisis...'The Bear Market' recently cos thats what ppl know and want to do, thats were the moneys been, ever heard of swaps Ains? The last few years trades have been long bonds and gold and short $ and STOCKS, shame your a moron eh

For somebody that always claims to have been short on
Oxford Biomedical and Energy Technique I dont know what his problem is ???

This is a severe case of sour grapes.

A person who as somebody else has said has a BIG chip on the shoulder on
the fact that thousands made good money shorting stocks that were so obviously
overvalued after the dot-com boom whilst he himself continued to average down
and suffer.

"may as well go down the casino"

If it not you that is doing it ainsoph then it's not your problem !!!!
Like you say shorters always have to buy back so why do you keep whinging
on about it ???

Gravy

ainsoph - 28 Apr'03 - 16:50 - 73 of 102 ETQ


Double digit loss today and now down over 50% within less than 6 months .... thank the gods I was shorting and not holding :-))

ainsoph - 28 Apr'03 - 12:36 - 64 of 102 ETQ


hmmmmmmm ..... not sure how minus 15% is better for anyone holding from Friday but there you go .... another tick or two and we can start a short going again :-))

LOL !

Do what they did in 1929 when they banned shorters
The market just kept going down coz there was no buyers left to close

guess I wasn't around in 1929 and maybe we have moved on a Tad since then. When it comes down to it all the shorters and derivative players want is secrecy - otherwise they cannot operate successfully ...





Buffett hits back at Greenspan over the risk of derivatives
By Grant Ringshaw (Filed: 11/05/2003) S Telegraph


Warren Buffett, the billionaire investor, has unleashed a further blistering attack on the use of derivatives by banks, arguing that the complex financial instruments could pose significant risks for the health of the global economy.

In an interview with The Sunday Telegraph, Buffett said: "Any time you get a great concentration of risk and interdependence among a few institutions upon the creditworthiness of others. . . it could get back to the days when you had runs on banks, when the good banks got pulled down by the bad banks."

Buffett's comments are in stark contrast to the views of Alan Greenspan, the powerful chairman of the Federal Reserve. Last week, Greenspan challenged Buffett's earlier apocalyptic attack on derivatives.

In a speech, Greenspan acknowledged fears about derivatives, but argued they had made the financial system "more resilient".

Greenspan said: "The benefits of derivatives, in my judgment, have far exceeded the costs."

But last week Buffett told The Sunday Telegraph that "banks could suffer the same fate as some energy companies" which have been "brought to their knees" by their derivatives books. "Greenspan says that this is a way of spreading risk for these companies but the truth is that it's concentrating risks," Buffett said.

Derivatives are complex financial instruments that allow investors to take bets on movements in anything from equities to interest rates, energy prices or even the weather. The market is estimated to have grown in value from just $3 trillion in 1990 to more than $125 trillion.

Two months ago, Buffett rattled the markets by branding derivatives as "time bombs" and "financial weapons of mass destruction".

Buffett, the world's richest man after Bill Gates, has direct experience of derivatives. Berkshire Hathaway, his investment company, is attempting to unwind fiendishly complex derivatives positions it inherited when it bought General Re, an insurance company.

Last week, Buffett revealed that General Re still has $6bn of derivatives receivables on its books even though the company has been unwinding its position for more than a year.

If Warren Buffett is so smart, and disapproves of derivatives so much, didn't due diligence reveal the "fiendishly complex derivatives positions" it inherited before it bought General Re? Sounds like a load of sour grapes to me.

BBC news


Workers 'left without pensions'


Final salary schemes have been affected by the stock market
Employees of a Scottish engineering firm could be left without a pension after their employer went into receivership with a massive hole in its final salary scheme.

Blyth & Blyth was taken over in a management buy-out earlier this year - but the new firm has no responsibility for the old pension scheme.

That means that 150 staff who had not retired by the time the company went into receivership stand to lose everything.

The independent trustee brought in for the scheme described the case as the "most distressing and difficult" he had ever dealt with.

Pension schemes face deficits when liabilities exceed the value of the funds.

There years of falling stock markets have left many final salary schemes with rising deficits.

Insolvent company

Part of the reason why Blyth & Blyth went bust was its inability to plug a 6m gap in its pension fund.

Under the current regulations any money left in the pension pot of an insolvent company must go to existing pensioners first.

Andy Scott, who has been appointed as an independent trustee of the scheme, admitted that it was something of a lottery.

"Someone who has been in the scheme for 35 years and was only one day away from retirement would not receive anything from the pension scheme," he said.

This, as far as I am aware, is the first case that has such a large hole and whereby the actual members are likely to get nothing

Andy Scott
Independent trustee
"Someone who retired one day before it got wound up would receive all the pension, but without increases."

In Blyth & Blyth's case, there may not even be enough money to pay the existing pensioners.

Mr Scott has asked an independent actuary to investigate how the pensions scheme was run.

He said the Blyth & Blyth case was highly unusual.

"This, as far as I am aware, is the first case that has such a large hole and whereby the actual members are likely to get nothing or the state bails them out.

"People have felt cheated, there has been one person who has retired recently and got nothing other than his own voluntary contributions.

"It has been, from an emotional point of view, easily the most distressing and difficult one that I have had to deal with."

What has the failure of Blythe and Blythe and their pension scheme got to do with this thread and short selling controls?

quite a lot if you think about it snappy

No it hasn't.

The story has to do with a final salary pension scheme that was not adequately funded. Lots of companies have this problem because assumptions were made about stock market performances and inflation targets that proved to be incorrect.

Yes markets have fallen but they would have fallen even if short sales were disclosed.

How do you know it wasn't adequetly funded? how do you know what assumptions they made? how would you know what inflation targets they had.

How would you know whether shorting disclosure had any effect ot not - you have no idea what shares they held



ains

well it obviously has a black hole which means that it didn't perform as expected otherwise more money would have had to have been contributed earlier on by the company to ensure that it met the requirements of the members.

An underfunded final salary scheme is not at all unique and very few companies now operate them for new employees but they are required to keep them going for existing members.

I'm sure it was adequately funded providing that the funds under management met growth and inflation predictions.

If this particular scheme has a black hole it is obvious that it didn't meat initial growth and inflation projections.........

It's not rocket science

hmmmmmmmmmm .... you seem to be making too many 'obvious' conclusions without knowing any of the detailed facts.

The Bylth and Bylth scheme doesn't have enough money to meet its commitments: therefore it is underfunded. QED. So are a whole bunch of others. Why? Because the markets failed to go ever upwards. Is this to do with short sellers? No. They merely take advantage of a falling market, they do not cause it per se. If the market continues upwards, shorters would always lose.

95% of trades on the LSE are made automatically by computers. That leaves 5% for the devilish human shorters.

I hope this helps.

MM

Ains,

I have never understood why you have such a bug bear about short selling, there is a buyer and a seller behind every counter party transaction, no difference between buying low and selling high, or selling high buying low.

Why shouldn't people arbitrage value perceptions either way round?

In the end intrinsic value will come out, no point blaming short selling for one's investment errors, I never do, the buck stops with me.

Yes, and I get it wrong, and need to face it when I do, tough, but one must.

Reality is the market like a football pich has two halves, as one very successful short seller put it, shares go up, they also come down, why not make money in both directions?

Until you convince yourself on the underlying reality of the markets, you can never play it properly, short selling is a reality, and profiting from downward moves is common sense as a result.

Short sellers don't drive markets, supply and demand economics do. The price the buyer and seller transact at drives the price, not the number of buyers or sellers in the market, it is the price exchange of a transaction that sets the price for the following deal on the bid and offer result of that transaction completion.

Successful traders must never be perma bulls, nor perma bears, but they must be realists.

Cheers

Ash

I wasn't aware I was blaming anyone for making a poor investment decision .... in fact I was talking from strength.

I liken the basic concept of short selling without disclosure to someone selling your shares for you - or maybe your house ...... because they have decided property prices are too high in your area. I am neither a permanent bull or bear and having played the market (succesfully) since I was at school - believe I am a realist ..... that does not mean I have to agree with the majority trader view. As a short term trader you may well like the current system but that doesn't make it right.

What I am saying is simple - we need transparency and then control otherwise everyone becomes a short term trader and there will be no investment.



ains

Ains,

Interesting reply, and a good one, I need to sleep on it you have raised some highly valid and intensely relevant points.

I must sleep on it, although not sure how you can force people to buy over valued equities at PERs of 3 times bear bottoms in USA (22.50 versus 7.50).

Cheers

Ash