In finance,
short selling (also known as
shorting or
going short) is the practice of selling assets, usually
securitiesA security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
, that have been borrowed from a third party (usually a
brokerInvestment brokers are individuals who bring together buyers and sellers of investments. They need a license to operate. They act on behalf of buyers and sellers of stock...
) with the intention of buying identical assets back at a later date to return to that third party. The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as the seller will pay less to buy the assets than it received on selling them. The short seller will incur a loss if the price of the assets rises (as it will have to buy them at a higher price than it sold them), and there is no theoretical limit to the loss that can be incurred by a short seller. Other costs of shorting may include a fee for borrowing the assets and payment of any dividends paid on the borrowed assets. "Shorting" and "going short" also refer to entering into any
derivativeA derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
or other contract under which the investor similarly profits from a fall in the value of an asset. Mathematically, short selling is equivalent to buying a negative amount of the assets.
Short selling is almost always conducted with assets traded in
public securities, commodities or currency marketsIn economics, a financial market is a mechanism that allows people and entities to buy and sell financial securities , commodities , and other fungible items of value at low transaction costs and at prices that reflect supply and demand.Both general markets and...
, as on such markets the amount being made or lost can be monitored in real time and it is generally possible to buy back the borrowed assets whenever required. Because such assets are
fungibleFungibility is the property of a good or a commodity whose individual units are capable of mutual substitution, such as crude oil, wheat, precious metals or currencies...
, any assets of the same type bought on those markets can be used to return to the lender.
Going short can be contrasted with the more conventional practice of "
going longIn finance, a long position in a security, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns the security and will profit if the price of the security goes up. Going long is the more conventional practice of investing and is contrasted with...
", whereby an investor profits from any increase in the price of the asset.
Concept
To profit from a decrease in the price of a security, a short seller can
borrow the securityIn finance, securities lending or stock lending refers to the lending of securities by one party to another. The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with collateral, in the form of cash, government securities,...
and sell it expecting that it will be cheaper to repurchase in the future. When the seller decides that the time is right (or when the lender recalls the securities), the seller buys equivalent securities and returns them to the lender. The process relies on the fact that the securities (or the other assets being sold short) are fungible; the term "borrowing" is therefore used in the sense of borrowing $10, where a different $10 note can be returned to the lender (as opposed to borrowing a car, where the same car must be returned).
A short seller typically borrows through a
brokerA stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...
, who is usually holding the securities for another
investorAn investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...
who owns the securities; the broker himself seldom purchases the securities to lend to the short seller. The lender does not lose the right to sell the securities while they have been lent, as the broker will usually hold a large pool of such securities for a number of investors which, as such securities are fungible, can instead be transferred to any buyer. In most market conditions there is a ready supply of securities to be borrowed, held by pension funds, mutual funds and other investors.
The act of buying back the securities that were sold short is called "covering the short" or "covering the position". A short position can be covered at any time before the securities are due to be returned. Once the position is covered, the short seller will not be affected by any subsequent rises or falls in the price of the securities, as he already holds the securities required to repay the lender.
The terms
shorting and
going short are also used as blanket terms for tactics that allow an investor to gain from the decline in price of a security. Such tactics are generally based on a
derivative contractA derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
, such as an
optionIn finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
, a future or a similar
synthetic positionIn finance, a synthetic position is a way to create the payoff of a financial instrument using other financial instruments.A synthetic position can be created by buying or selling physical financial instruments and/or derivatives....
. For example, a put option consists of the right to sell an asset at a given
strike priceIn options, the strike price is a key variable in a derivatives contract between two parties. Where the contract requires delivery of the underlying instrument, the trade will be at the strike price, regardless of the spot price of the underlying instrument at that time.Formally, the strike...
; the owner of the option therefore benefits when the market price of the asset falls below that price, as he can buy the asset at the lower price and sell it under the option at the strike price. Similarly, a short position in a
futures contractIn finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
means the holder of the position has an obligation to sell the underlying asset later at a given price; if the price falls below the given price, the person with the short position can buy the asset at the lower price and sell it under the future at the higher price.
Profitable trade
Shares in C & Company currently trade at $10 per
shareA joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in...
.
- A short seller borrows 100 shares of C & Company and immediately sells them for a total of $1,000.
- Subsequently, the price of the shares falls to $8 per share.
- Short seller now buys 100 shares of C & Company for $800.
- Short seller returns the shares to the lender, who must accept the return of the same number of shares as was lent despite the fact that the market value of the shares has decreased.
- Short seller retains as profit the $200 difference (minus borrowing fees) between the price at which he sold the shares he borrowed and the lower price at which he was able to purchase the shares he returned.
Loss-making trade
Shares in C & Company currently trade at $10 per share.
- A short seller borrows 100 shares of C & Company and immediately sells them for a total of $1,000.
- Subsequently the price of the shares rises to $25.
- Short seller is required to return the shares, and to meet the obligation is compelled to buy 100 shares of C & Company for $2,500.
- Short seller returns the shares to the lender who accepts the return of the same number of shares as was lent.
- Short seller incurs as a loss the $1,500 difference between the price at which he sold the shares he borrowed and the higher price at which he had to purchase the shares he returned (plus borrowing fees).
Comparison with long positions
Short selling is the opposite of "
going longIn finance, a long position in a security, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns the security and will profit if the price of the security goes up. Going long is the more conventional practice of investing and is contrasted with...
". A short seller takes a negative, or "
bearishA market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames...
", stance, believing that the price of a security will fall. Investors who employ short selling often use it to allow them to profit on trading in securities which they believe are overvalued, just as traditional
longIn finance, a long position in a security, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns the security and will profit if the price of the security goes up. Going long is the more conventional practice of investing and is contrasted with...
investors attempt to profit on securities which are undervalued by buying them.
Because a short position is the opposite of a long position, many features of the position are reversed in comparison. In particular, the profit (rather than the loss) is limited to the value of the security, but the loss (rather than the profit) is theoretically unlimited. In practice, as the price of a security rises the short seller will receive a
margin callMargin Call is a 2011 American independent drama film, written and directed by J.C. Chandor. The film has an ensemble cast that includes Kevin Spacey, Demi Moore, Paul Bettany, Jeremy Irons, Zachary Quinto, Stanley Tucci, Simon Baker, and Penn Badgley...
from the broker, demanding that the short seller either cover his short position (by purchasing the security) or provide additional cash in order to meet the margin requirement for the security, which effectively places a limit on the amount that can be lost.
History
Some hold that the practice was invented in 1609 by Dutch merchant
Isaac Le MaireIsaac le Maire was a merchant for the Vereenigde Oostindische Compagnie and later for the Austraalse Compagnie. He is best known for his constant strife with the VOC, which ultimately led to the discovery of Cape Horn.Isaac le Maire was born in 1558 or 1559 in Tournai...
, a sizeable shareholder of the Vereenigde Oostindische Compagnie (VOC).
Short selling has been a target of ire ever since. In the eighteenth century, England banned it outright. The London banking house of
Neal, James, Fordyce and DownNeal, James, Fordyce and Down was a London banking house which collapsed in June 1772, precipitating a major banking crisis which included the collapse of almost every private bank in Scotland, and a liquidity crisis in the two major banking centres of the world, London and Amsterdam...
collapsed in June 1772, precipitating a major crisis which included the collapse of almost every private bank in Scotland, and a liquidity crisis in the two major banking centres of the world, London and Amsterdam. The bank had been speculating by shorting
East India CompanyThe East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...
stock on a massive scale, and apparently using customer deposits to cover losses. It was perceived as having a magnifying effect in the violent downturn in the
Dutch tulip marketTulip mania or tulipomania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed...
in the eighteenth century. In another well-referenced example,
George SorosGeorge Soros is a Hungarian-American business magnate, investor, philosopher, and philanthropist. He is the chairman of Soros Fund Management. Soros supports progressive-liberal causes...
became notorious for "breaking the
Bank of EnglandThe Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
" on
Black WednesdayIn politics and economics, Black Wednesday refers to the events of 16 September 1992 when the British Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism after they were unable to keep it above its agreed lower limit...
of 1992, when he sold short more than $10 billion worth of pounds sterling.
The term "short" was in use from at least the mid-nineteenth century. It is commonly understood that "short" is used because the short-seller is in a deficit position with his
brokerage houseA stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...
.
Jacob LittleJacob Little was the first Great Bear of Wall Street. Bears on Wall Street had operated more in the United States than in Europe. Although the New York Legislature passed a ban on short sales in 1812, the bear operator was a familiar figure in the 19th century...
was known as The Great Bear of Wall Street who began shorting stocks in the United States in 1822.
Short sellers were blamed for the
Wall Street Crash of 1929The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
.
RegulationRegulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
s governing short selling were implemented in the United States in 1929 and in 1940. Political fallout from the 1929 crash led Congress to enact a law banning short sellers from selling shares during a downtick; this was known as the
uptick ruleThe uptick rule refers to a trading restriction that disallowed short selling of securities except on an uptick. For the rule to be satisfied, the short must be either at a price above the last traded price of the security, or at the last traded price if that price was higher than the price in the...
, and this was in effect until July 3, 2007 when it was removed by the SEC (SEC Release No. 34-55970). President
Herbert HooverHerbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...
condemned short sellers and even
J. Edgar HooverJohn Edgar Hoover was the first Director of the Federal Bureau of Investigation of the United States. Appointed director of the Bureau of Investigation—predecessor to the FBI—in 1924, he was instrumental in founding the FBI in 1935, where he remained director until his death in 1972...
said he would investigate short sellers for their role in prolonging the
DepressionThe Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
. Legislation introduced in 1940 banned mutual funds from short selling (this law was lifted in 1997). A few years later, in 1949,
Alfred Winslow JonesAlfred Winslow Jones , a sociologist, author, and financial journalist, is credited with forming the first modern hedge fund and is widely regarded as the father of the hedge fund industry.-Background:...
founded a fund (that was unregulated) that bought stocks while selling other stocks short, hence hedging some of the
market riskMarket risk is the risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices...
, and the
hedge fundA hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
was born.
Some typical examples of mass short-selling activity are during "
bubblesAn economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...
", such as the
Dot-com bubbleThe dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
. At such times, short-sellers typically hope to profit from a market correction.
Food and Drug AdministrationThe Food and Drug Administration is an agency of the United States Department of Health and Human Services, one of the United States federal executive departments...
(FDA) announcements approving a drug often cause the market to react irrationally due to media attention; short sellers use the opportunity to sell into the buying frenzy and wait for the exaggerated reaction to subside before covering their position. Negative news, such as litigation against a company, may also entice professional traders to sell the stock short.
During the
Dot-com bubbleThe dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
, shorting a start-up company could backfire since it could be taken over at a price higher than the price at which speculators shorted. Short-sellers were forced to cover their positions at acquisition prices, while in many cases the firm often overpaid for the start-up.
Short selling restrictions in 2008
In September 2008 short selling, exacerbated by
naked short sellingNaked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame,...
, was seen as a contributing factor to undesirable market volatility, and was subsequently prohibited by the U.S. Securities and Exchange Commission (SEC) for 799 financial companies for three weeks in an effort to stabilize those companies. At the same time the U.K.
Financial Services AuthorityThe Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
(FSA) prohibited short selling for 32 financial companies. On September 22,
AustraliaAustralia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
enacted even more extensive measures with a total ban of short selling. Also on September 22, the Spanish market regulator,
CNMVThe Comisión Nacional del Mercado de Valores is the Spanish government agency responsible for regulating the financial securities markets in Spain...
, required investors to notify it of any short positions in financial institutions, if they exceed 0.25% of a company's share capital, and it also restricted naked shorting.
In an interview with the Washington Post in late December 2008, U.S. Securities and Exchange Commission Chairman Christopher Cox said that the decision to impose a three-week ban on short selling of financial company stocks was taken reluctantly, but that the view at the time, from Treasury Secretary Henry M. Paulson and Federal Reserve chairman Ben S. Bernanke, was that "if we did not act, and act at that instant, these financial institutions could fail as a result and there would be nothing left to save." Later he changed his mind and thought the ban unproductive. In a December 2008 interview with
ReutersReuters is a news agency headquartered in New York City. Until 2008 the Reuters news agency formed part of a British independent company, Reuters Group plc, which was also a provider of financial market data...
, he explained that the SEC's Office of Economic Analysis was still evaluating data from the temporary ban, and that preliminary findings point to several unintended market consequences and side effects. "While the actual effects of this temporary action will not be fully understood for many more months, if not years," he said, "knowing what we know now, I believe on balance the Commission would not do it again.”
Short selling restrictions in European economic crisis
In June 2010, due to the economical crisis Germany permanently banned naked short selling.
In August 2011, France, Italy, Spain, Belgium and South Korea banned all short selling in their financial stocks.
Mechanism
see
Securities lendingIn finance, securities lending or stock lending refers to the lending of securities by one party to another. The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with collateral, in the form of cash, government securities,...
.
Short selling stock consists of the following:
- The investor instructs the broker to sell the shares and the proceeds are credited to his broker's account at the firm upon which the firm can earn interest. Generally, the short seller does not earn interest on the short proceeds and cannot use or encumber the proceeds for another transaction.
- Upon completion of the sale, the investor has 3 days (in the US) to borrow the shares. If required by law, the investor first ensures that cash or equity is on deposit with his brokerage firm as collateral for the initial short margin requirement
In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty...
. Some short sellers, mainly firms and hedge funds, participate in the practice of naked short sellingNaked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame,...
, where the shorted shares are not borrowed or delivered.
- The investor may close the position by buying back the shares (called covering). If the price has dropped, he makes a profit. If the stock advanced, he takes a loss.
- Finally, the investor may return the shares to the lender or stay short indefinitely.
- At any time, the lender may call for the return of his shares e.g. because he wants to sell them. The borrower must buy shares on the market and return them to the lender (or he must borrow the shares from elsewhere). When the broker completes this transaction automatically, it is called a 'buy-in'.
Shorting stock in the U.S.
In the U.S., in order to sell stocks short, the seller must arrange for a broker-dealer to confirm that it is able to make delivery of the shorted securities. This is referred to as a "locate.” Brokers have a variety of means to borrow stocks in order to facilitate locates and make good delivery of the shorted security.
The vast majority of stocks borrowed by U.S. brokers come from loans made by the leading custody banks and fund management companies (see list below). Institutions often lend out their shares in order to earn a little extra money on their investments. These institutional loans are usually arranged by the custodian who holds the securities for the institution. In an institutional stock loan, the borrower puts up cash collateral, typically 102% of the value of the stock. The cash collateral is then invested by the lender, who often rebates part of the interest to the borrower. The interest that is kept by the lender is the compensation to the lender for the stock loan.
Brokerage firms can also borrow stocks from the accounts of their own customers. Typical margin account agreements give brokerage firms the right to borrow customer shares without notifying the customer. In general, brokerage accounts are only allowed to lend shares from accounts for which customers have "debit balances", meaning they have borrowed from the account. SEC Rule 15c3-3 imposes such severe restrictions on the lending of shares from cash accounts or excess margin (fully paid for) shares from margin accounts that most brokerage firms do not bother except in rare circumstances. (These restrictions include that the broker must have the express permission of the customer and provide collateral or a letter of credit.)
Most brokers will allow retail customers to borrow shares to short a stock only if one of their own customers has purchased the stock on
marginIn finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty...
. Brokers will go through the "locate" process outside their own firm to obtain borrowed shares from other brokers only for their large institutional customers.
Stock exchanges such as the NYSE or the
NASDAQThe NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
typically report the "short interest" of a stock, which gives the number of shares that have been legally sold short as a percent of the total float. Alternatively, these can also be expressed as the
short interest ratioThe short ratio for a public company is derived by dividing the number of shares sold short by the average daily trading volume...
, which is the number of shares legally sold short as a multiple of the average daily volume. These can be useful tools to spot trends in stock price movements but in order to be reliable, investors must also ascertain the number of shares brought into existence by naked shorters. Investors are cautioned to remember that for every share that has been shorted (owned by a new owner), a 'shadow owner' exists (i.e. the original owner) who also is part of the universe of owners of that stock, i.e. Despite not having any voting rights, he has not relinquished his interest and some rights in that stock.
Securities lending
When a security is sold, the seller is contractually obligated to deliver it to the buyer. If a seller sells a security short without owning it first, the seller needs to borrow the security from a third party to fulfill its obligation. Otherwise, the seller will "fail to deliver," the transaction will not
settleSettlement of securities is a business process whereby securities or interests in securities are delivered, usually against payment of money, to fulfill contractual obligations, such as those arising under securities trades....
, and the seller may be subject to a claim from its
counterpartyA counterparty is a legal and financial term. It means a party to a contract. A counterparty is usually the entity with whom one negotiates on a given agreement, and the term can refer to either party or both, depending on context....
. Certain large holders of securities, such as a
custodianThe term Custodian may refer to:* Janitor, a person who cleans, maintains, provides security and initiates repairs or makes minor repairs to buildings.* Custodian bank, an organization responsible for safeguarding a firm's or individual's financial assets...
or
investment managementInvestment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...
firm, often lend out these securities to gain extra income, a process known as
securities lendingIn finance, securities lending or stock lending refers to the lending of securities by one party to another. The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with collateral, in the form of cash, government securities,...
. The lender receives a fee for this service. Similarly, retail investors can sometimes make an extra fee when their broker wants to borrow their securities. This is only possible when the investor has full
titleTitle is a legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or an equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document that serves as evidence of ownership...
of the security, so it cannot be used as collateral for margin buying.
Sources of short interest data
Time delayed short interest data (for legally shorted shares) is available in a number of countries, including the US, the UK, Hong Kong, and Spain. The amount of stocks being shorted on a global basis has increased in recent years for various structural reasons (e.g. the growth of 130/30 type strategies, short or bear ETFs). The data is typically delayed; for example, the NASDAQ requires its
broker-dealerA broker-dealer is a term used in United States financial services regulations. It is a natural person, a company or other organization that trades securities for its own account or on behalf of its customers....
member firms to report data on the 15th of each month, and then publishes a compilation eight days later.
Some market data providers (like
Data ExplorersData Explorers is a privately owned financial data and software company headquartered in London, UK. The company provides financial benchmarking information to the Securities lending Industry and short-side intelligence to the Investment Management community.....
and SunGard Financial Systems) believe that stock lending data provides a good proxy for short interest levels (excluding any naked short interest). SunGard provides daily data on short interest by tracking the proxy variables based on borrowing and lending data which it collects.
Short selling terms
Days to Cover (DTC) is a numerical term that describes the relationship between the amount of shares in a given equity that have been legally short sold and the number of days of typical trading that it would require to 'cover' all legal short positions outstanding. For example, if there are ten million shares of XYZ Inc. that are currently legally short sold and the average daily volume of XYZ shares traded each day is one million, it would require ten days of trading for all legal short positions to be covered (10 million / 1 million).
Short Interest is a numerical term that relates the number of shares in a given equity that have been legally shorted divided by the total shares outstanding for the company, usually expressed as a percent. For example, if there are ten million shares of XYZ Inc. that are currently legally short sold, and the total number of shares issued by the company is one hundred million, the Short Interest is 10% (10 million / 100 million). If however, shares are being created through naked short selling, "fails" data must be accessed to assess accurately the true level of short interest.
Major lenders
- Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
(New Jersey)
- State Street Corporation (Boston)
- JP Morgan Chase (New York)
- Northern Trust
Northern Trust Corporation is an international financial services company headquartered in Chicago, Illinois, USA. It provides investment management, asset and fund administration, fiduciary and banking services through a network of 85 offices in 18 U.S. states and 12 international offices in North...
(Chicago)
- Fortis
Fortis N.V./S.A. was a company active in insurance, banking and investment management. In 2007 it was the 20th largest business in the world by revenue but after encountering severe problems in the financial crisis of 2008, most of the company was sold in parts, with only insurance activities...
(Amsterdam, now defunct)
- ABN AMRO
ABN AMRO Bank N.V. is a Dutch state-owned bank with headquarters in Amsterdam. It was re-established, in its current form, in 2009 following the acquisition and break up of ABN AMRO Group by a banking consortium consisting of Royal Bank of Scotland Group, Santander and Fortis...
(Amsterdam, Netherlands, formerly Fortis)
- Citibank
Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
(New York)
- Bank of New York Mellon Corporation
The Bank of New York Mellon Corporation is a global financial services company formed on July 1, 2007 as result of the merger of The Bank of New York and Mellon Financial Corporation...
(New York)
- UBS AG
UBS AG is a Swiss global financial services company headquartered in Basel and Zürich, Switzerland, which provides investment banking, asset management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland...
(Zurich, Switzerland)
- Barclays (London, England)
Naked short selling
A naked short sale occurs when a security is sold short without borrowing the security within a set time, 3 days (T+3) in the US. This means that the buyer of such a short is buying the short-seller's promise to deliver a share, rather than buying the share itself. The short-seller's promise is known as a hypothecated share.
When the holder of the underlying stock receives a dividend, the holder of the hypothecated share would receive an equal dividend from the short seller.
Naked shorting has been made illegal except where allowed under limited circumstances by
market makerA market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. From a market microstructure theory standpoint, market makers are net sellers of an option to be...
s. It is detected by the
Depository Trust & Clearing Corporation (in the US) as a "failure to deliver" or simply "fail.” While many fails are settled in a short time, some have been allowed to linger in the system.
In the US, arranging to borrow a security before a short sale is called a
locateIn finance, a locate refers to an approval from a broker that needs to be obtained prior to effecting a short sale in any equity security, i.e. to "locate" securities available for borrowing....
. In 2005, to prevent widespread failure to deliver securities, the U.S. Securities and Exchange Commission (SEC) put in place Regulation SHO, intended to prevent investors from selling some stocks short before doing a locate. Requirements that are more stringent were put in place in September 2008, ostensibly to prevent the practice from exacerbating market declines. The rules were made permanent in 2009.
Fees
When a broker facilitates the delivery of a client's short sale, the client is charged a fee for this service, usually a standard commission similar to that of purchasing a similar security.
If the short position begins to move against the holder of the short position (i.e., the price of the security begins to rise), money will be removed from the holder's cash balance and moved to his or her margin balance. If short shares continue to rise in price, and the holder does not have sufficient funds in the cash account to cover the position, the holder will begin to borrow on margin for this purpose, thereby accruing margin interest charges. These are computed and charged just as for any other margin debit.
When a security's ex-dividend date passes, the dividend is deducted from the shortholder's account and paid to the person from whom the stock was borrowed.
For some brokers, the short seller may not earn interest on the proceeds of the short sale or use it to reduce outstanding margin debt. These brokers may not pass this benefit on to the retail client unless the client is very large. This means an individual short-selling $1000 of stock will lose the interest to be earned on the $1000 cash balance in his or her account.
Dividends and voting rights
Where shares have been shorted and the company which issues the shares distributes a dividend, the question arises as to who receives the dividend. The new buyer of the shares, who is the "holder of record" and holds the shares outright, will receive the dividend from the company. However, the lender, who may hold its shares in a margin account with a prime broker and is unlikely to be aware that these particular shares are being lent out for shorting, also expects to receive a dividend. The short seller will therefore pay to the lender an amount equal to the dividend in order to compensate, though as this payment does not come from the company it is not technically a dividend as such. The short seller is therefore said to be "short the dividend".
A similar issue comes up with the voting rights attached to the shorted shares. Unlike a dividend, voting rights cannot legally be synthesized and so the buyer of the shorted share, as the holder of record, controls the voting rights. The owner of a margin account from which the shares were lent will have agreed in advance to relinquish voting rights to shares during the period of any short sale.
As noted earlier, victims of Naked Shorting attacks sometimes report that the number of votes cast is greater than the number of shares issued by the company.
Futures and options contracts
When trading
futures contractIn finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s, being 'short' means having the legal obligation to deliver something at the expiration of the contract, although the holder of the short position may alternately buy back the contract prior to expiration instead of making delivery. Short futures transactions are often used by producers of a commodity to fix the future price of goods they have not yet produced. Shorting a futures contract is sometimes also used by those holding the underlying asset (i.e. those with a long position) as a temporary hedge against price declines. Shorting futures may also be used for speculative trades, in which case the investor is looking to profit from any decline in the price of the futures contract prior to expiration.
An investor can also purchase a put option, giving that investor the right (but not the obligation) to sell the underlying asset (such as shares of stock) at a fixed price. In the event of a market decline, the option holder may exercise these put options, obliging the counterparty to buy the underlying asset at the agreed upon (or "strike") price, which would then be higher than the current quoted spot price of the asset.
Currency
Selling short on the currency markets is different from selling short on the stock markets. Currencies are traded in pairs, each currency being priced in terms of another. In this way, selling short on the currency markets is identical to going long on stocks.
Novice traders or stock traders can be confused by the failure to recognize and understand this point: a
contractA contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
is always long in terms of one medium and short another.
When the exchange rate has changed, the trader buys the first currency again; this time he gets more of it, and pays back the loan. Since he got more money than he had borrowed initially, he makes money. Of course, the reverse can also occur.
An example of this is as follows: Let us say a trader wants to trade with the US dollar and the
Indian rupeeThe Indian rupee is the official currency of the Republic of India. The issuance of the currency is controlled by the Reserve Bank of India....
currencies. Assume that the current market rate is USD 1 to Rs.50 and the trader borrows Rs.100. With this, he buys USD 2. If the next day, the conversion rate becomes USD 1 to Rs.51, then the trader sells his USD 2 and gets Rs.102. He returns Rs.100 and keeps the Rs.2 profit (minus fees).
One may also take a short position in a currency using futures or options; the preceding method is used to bet on the spot price, which is more directly analogous to selling a stock short.
Risks
Note: this section does not apply to currency markets.
Short selling is sometimes referred to as a "negative income investment strategy" because there is no potential for dividend income or interest income. Stock is held only long enough to be sold pursuant to the contract, and one's return is therefore limited to short term capital gains, which are taxed as ordinary income. For this reason, buying shares (called "going long") has a very different
riskRisk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
profile from selling short. Furthermore, a "long's" losses are limited because the price can only go down to zero, but
gainIn electronics, gain is a measure of the ability of a circuit to increase the power or amplitude of a signal from the input to the output. It is usually defined as the mean ratio of the signal output of a system to the signal input of the same system. It may also be defined on a logarithmic scale,...
s are not, as there is no limit, in theory, on how high the price can go. On the other hand, the short seller's possible gains are limited to the original price of the stock, which can only go down to zero, whereas the loss potential, again in theory, has no limit. For this reason, short selling probably is most often used as a
hedgeA hedge is an investment position intended to offset potential losses that may be incurred by a companion investment.A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of...
strategy to manage the risks of long investments.
Many short sellers place a "stop order" with their stockbroker after selling a stock short. This is an order to the brokerage to cover the position if the price of the stock should rise to a certain level, in order to limit the loss and avoid the problem of unlimited liability described above. In some cases, if the stock's price skyrockets, the stockbroker may decide to cover the short seller's position immediately and without his consent, in order to guarantee that the short seller will be able to make good on his debt of shares.
Short sellers must be aware of the potential for a short squeeze. When the price of a stock rises significantly, some people who are shorting the stock will cover their positions to limit their losses (this may occur in an automated way if the short sellers had stop-loss orders in place with their brokers); others may be forced to close their position to meet a
margin callMargin Call is a 2011 American independent drama film, written and directed by J.C. Chandor. The film has an ensemble cast that includes Kevin Spacey, Demi Moore, Paul Bettany, Jeremy Irons, Zachary Quinto, Stanley Tucci, Simon Baker, and Penn Badgley...
; others may be forced to cover, subject to the terms under which they borrowed the stock, if the person who lent the stock wishes to sell and take a profit. Since covering their positions involves buying shares, the short squeeze causes an ever further rise in the stock's price, which in turn may trigger additional covering. Because of this, most short sellers restrict their activities to heavily traded stocks, and they keep an eye on the "short interest" levels of their short investments. Short interest is defined as the total number of shares that have been legally sold short, but not covered. A short squeeze can be deliberately induced. This can happen when large investors (such as companies or wealthy individuals) notice significant short positions, and buy many shares, with the intent of selling the position at a profit to the short sellers who will be panicked by the initial uptick or who are forced to cover their short positions in order to avoid margin calls.
Another risk is that a given stock may become "hard to borrow." As defined by the SEC and based on lack of availability, a broker may charge a hard to borrow fee daily, without notice, for any day that the SEC declares a share is hard to borrow. Additionally, a broker may be required to cover a short seller's position at any time ("buy in"). The short seller receives a warning from the broker that he is "failing to deliver" stock, which will lead to the buy-in.
Because short sellers must deliver the shorted securities to their broker eventually, and will need money to buy them, there is a credit risk for the broker. The penalties for failure to deliver on a short selling contract inspired financier
Daniel Drew-Biography:He was born in Carmel, New York.Drew was poorly educated. His father died when Daniel was fifteen years old. Drew enlisted and drilled, but because he enlisted too late, never fought in the War of 1812. After the war, he started a successful cattle-driving business. In 1823, he married...
to warn: "He who sells what isn't his'n, Must buy it back or go to pris'n." To manage its own risk, the broker requires the short seller to keep a
marginIn finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty...
account, and charges interest of between 2% and 8% depending on the amounts involved.
In 2011, the eruption of the massive China stock frauds on North American equity markets brought a related risk to light for the short seller. The efforts of research-oriented short sellers to expose these frauds eventually prompted NASDAQ, NYSE and other exchanges to impose sudden, lengthy trading halts that froze the values of shorted stocks at artificially high values. Reportedly in some instances, brokers charged short sellers excessively large amounts of interest based on these high values as the shorts were forced to continue their borrowings at least until the halts were lifted.
Short sellers tend to temper overvaluation by selling into exuberance. Likewise, short sellers are said to provide price support by buying when negative sentiment is exacerbated after a significant price decline. Short selling can have negative implications if it causes a premature or unjustified share price collapse when the fear of cancellation due to bankruptcy becomes contagious.
Hedging
Hedging often represents a means of minimizing the risk from a more complex set of transactions.
Examples of this are:
- A farmer who has just planted his wheat wants to lock in the price at which he can sell after the harvest. He would take a short position in wheat futures.
- A market maker
A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. From a market microstructure theory standpoint, market makers are net sellers of an option to be...
in corporate bondA corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date...
s is constantly trading bonds when clients want to buy or sell. This can create substantial bond positions. The largest risk is that interest rates overall move. The trader can hedge this risk by selling government bonds short against his long positions in corporate bonds. In this way, the risk that remains is credit riskCredit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Other terms for credit risk are default risk and counterparty risk....
of the corporate bonds.
- an options trader may short shares in order to remain delta neutral
In finance, delta neutral describes a portfolio of related financial securities, in which the portfolio value remains unchanged due to small changes in the value of the underlying security...
so that he is not exposed to risk from price movements in the stocks that underlie his options
Arbitrage
A short seller may be trying to benefit from market inefficiencies arising from the mispricing of certain products. Examples of this are
- An arbitrageur who buys long futures contracts on a US Treasury security
A United States Treasury security is government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States federal government, and they are often referred to simply as Treasuries...
, and sells short the underlying US Treasury securityA United States Treasury security is government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States federal government, and they are often referred to simply as Treasuries...
.
Against the box
One variant of selling short involves a long position. "Selling short against the box" consists of holding a long position on which the shares have already risen, whereupon one then enters a short sell order for an equal amount of shares. The term box alludes to the days when a
safe deposit boxA safe deposit box or wrongly referred to as a safety deposit box is an individually-secured container, usually held within a larger safe or bank vault. Safe deposit boxes are generally located in banks, post offices or other institutions...
was used to store (long) shares. The purpose of this technique is to lock in paper profits on the long position without having to sell that position (and possibly incur taxes if said position has appreciated). Once the short position has been entered, it serves to balance the long position taken earlier. Thus, from that point in time, the profit is locked in (less brokerage fees and short financing costs), regardless of further fluctuations in the underlying share price. For example, one can ensure a profit in this way, while delaying sale until the subsequent tax year.
U.S. investors considering entering into a "short against the box" transaction should be aware of the tax consequences of this transaction. Unless certain conditions are met, the IRS deems a "short against the box" position to be a "constructive sale" of the long position, which is a taxable event. These conditions include a requirement that the short position be closed out within 30 days of the end of the year and that the investor must hold their long position, without entering into any hedging strategies, for a minimum of 60 days after the short position has been closed.
The regulatory response
In the US, Regulation SHO was the SEC's first update to short selling restrictions since 1938. It established "locate" and "close-out" requirements for broker-dealers, in an effort to curb
naked short sellingNaked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame,...
. Compliance with the regulation began on January 3, 2005.
In the US,
initial public offeringAn initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
s (IPOs) cannot be sold short for a month after they start trading. This mechanism is in place to ensure a degree of price stability during a company's initial trading period. However, some brokerages that specialize in
penny stockIn the United States, penny stocks are common shares of small public companies that trade at less than $1.00. In some countries, similar shares of stock are known as cent stocks.-Concerns for investors:...
s (referred to colloquially as
bucket shopsAs defined by the U.S. Supreme Court a Bucket shop is "[a]n establishment, nominally for the transaction of a stock exchange business, or business of similar character, but really for the registration of bets, or wagers, usually for small amounts, on the rise or fall of the prices of stocks, grain,...
) have used the lack of short selling during this month to
pump and dump"Pump and dump" is a form of microcap stock fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price....
thinly traded IPOs.
CanadaCanada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
and other countries do allow selling IPOs (including U.S. IPOs) short.
In the UK, the
Financial Services AuthorityThe Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
had a moratorium on short selling 29 leading financial stocks, effective from 2300 GMT, 19 September 2008 until 16 January 2009.
After the ban was lifted, John McFall, chairman of the Treasury Select Committee, House of Commons, made clear in public statements and a letter to the FSA that he believed it ought to be extended.
In the US, a similar response was made by the Securities and Exchange Commission with a ban on short selling on 799 financial stocks from 19 September 2008 until 2 October 2008. Greater penalties for naked shorting, by mandating delivery of stocks at clearing time, were also introduced. Some state governors have been urging state pension bodies to refrain from lending stock for shorting purposes.
Soon thereafter, between 19 and 21 September 2008,
AustraliaAustralia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
temporarily banned short selling, and later placed an indefinite ban on naked short selling. The ban on short selling was further extended for another 28 days on 21 October 2008.
GermanyGermany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
,
IrelandIreland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...
,
SwitzerlandSwitzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
and
CanadaCanada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
banned short selling leading financial stocks, and
FranceThe French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, the
NetherlandsThe Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
and
BelgiumBelgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
banned naked short selling leading financial stocks.
By contrast, Chinese regulators have responded by allowing short selling, along with a package of other market reforms.
An assessment of the effect of a ban on short-selling that was enacted in many countries in the fall of 2008 showed that it had only "little impact" on the movements of stocks, with stock prices moving in the same way as they would have moved anyhow, but the ban reduced volume and liquidity. By December, countries in Europe were considering to remove the ban, while the ban in the US was already lifted in October 2008. The SEC
proposed new restrictions on short selling in April 2009.
Views of short selling
Advocates of short selling argue that the practice is an essential part of the
price discoveryThe price discovery process is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers ....
mechanism. Financial researchers at Duke University said in a study that short interest is an indicator of poor future stock performance (the self-fulfilling aspect) and that short sellers exploit market mistakes about firms' fundamentals.
Such noted investors as
Seth KlarmanSeth Klarman is the founder and president of the Baupost Group, a Boston-based private investment partnership, and the author of a book on value investing.-Career:...
and
Warren BuffettWarren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...
have said that short sellers help the market. Klarman argued that short sellers are a useful counterweight to the widespread bullishness on Wall Street, while Buffett believes that short sellers are useful in uncovering fraudulent accounting and other problems at companies.
Shortseller
James ChanosJames S. Chanos is an American hedge fund manager, and is president and founder of ', a New York City investment company that is focused on short selling.-Life and career:...
received widespread publicity when he was an early critic of the accounting practices of Enron Corp. Chanos responds to critics of short-selling by pointing to the critical role they played in identifying problems at Enron, Boston Market and other "financial disasters" over the years. In 2011, research oriented short sellers were widely acknowledged for exposing the China Stock Frauds.
Commentator Jim Cramer has expressed concern about short selling and started a petition calling for the reintroduction of the
uptick ruleThe uptick rule refers to a trading restriction that disallowed short selling of securities except on an uptick. For the rule to be satisfied, the short must be either at a price above the last traded price of the security, or at the last traded price if that price was higher than the price in the...
. Books like Don't Blame the Shorts by
Robert SloanRobert Sloan is a Scottish footballer, currently playing for East Fife in the Scottish Second Division.-Career:...
and Fubarnomics by
Robert E. WrightRobert E. Wright is a business, economic, financial, and monetary historian and the inaugural Rudy and Marilyn Nef Family Chair of Political Economy at Augustana College in Sioux Falls, South Dakota...
suggest Cramer exaggerated the costs of short selling and underestimated the benefits, which may include the ex ante identification of
assetIn financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
bubbleA stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation....
s.
Individual short sellers have been subject to criticism and even litigation.
Manuel P. AsensioManuel P. Asensio is a money manager in New York best known for his work as an activist short-seller. Since 2000, Asensio and his firm have been subject to regulatory sanctions by the Financial Industry Regulatory Authority ....
, for example, engaged in a lengthy legal battle with the pharmaceutical manufacturer Hemispherx Biopharma.
Several scientific results on the effectiveness of short selling bans indicate that short selling bans do not contribute to more moderate market dynamics.
See also
- Inverse exchange-traded fund
An inverse exchange-traded fund is an exchange-traded fund , traded on a public stock market, which is designed to perform as the inverse of whatever index or benchmark it is designed to track...
- Joseph Parnes
Joseph Parnes is an American businessperson and registered Investment Advisor notable for his involvement in short selling. He is president of Technomart Investment Advisors and editor of the market letter Shortex. As an investment advisor, he has distinguished himself as one of the foremost short...
- Long (finance)
In finance, a long position in a security, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns the security and will profit if the price of the security goes up. Going long is the more conventional practice of investing and is contrasted with...
- James Chanos
James S. Chanos is an American hedge fund manager, and is president and founder of ', a New York City investment company that is focused on short selling.-Life and career:...
- Magnetar Capital
Magnetar Capital is a hedge fund based in Evanston, Illinois. Among its many activities, the firm was actively involved in the collateralized debt obligation market during the 2006–2007 period...
- Manuel P. Asensio
Manuel P. Asensio is a money manager in New York best known for his work as an activist short-seller. Since 2000, Asensio and his firm have been subject to regulatory sanctions by the Financial Industry Regulatory Authority ....
- Repurchase agreement
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively...
- Securities lending
In finance, securities lending or stock lending refers to the lending of securities by one party to another. The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with collateral, in the form of cash, government securities,...
- Short ratio
- Socially responsible investing
Socially responsible investing , also known as sustainable, socially conscious, or ethical investing, describes an investment strategy which seeks to consider both financial return and social good....
- Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
- Straddle
In finance, a straddle is an investment strategy involving the purchase or sale of particular option derivatives that allows the holder to profit based on how much the price of the underlying security moves, regardless of the direction of price movement...
- Uptick rule
The uptick rule refers to a trading restriction that disallowed short selling of securities except on an uptick. For the rule to be satisfied, the short must be either at a price above the last traded price of the security, or at the last traded price if that price was higher than the price in the...
- Anthony Elgindy
Anthony Elgindy , born Amr Ibrahim Elgindy in Egypt, is the founder of Pacific Equity Investigations, and is best known as "Anthony@Pacific", the "Internet's most theatrical short-seller"....
External links and sources
- Barron's on Off Wall Street Consulting Group, July 31, 2010
- Porsche VW Shortselling Scandal
- "Short-Selling Bans Dampen 130/30 Strategies Worldwide," Global Investment Technology, Sept. 29, 2008
- Short Selling Introduction
- Short Interest: What it tells us
- SEC Discussion of Naked Short Selling
- '"Financial Interest Disclosures Can Protect Markets from 'Short & Distort' Manipulators", Alex J. Pollock, June 6, 2006, Washington Legal Foundation
The Washington Legal Foundation is a non-profit legal organization based in Washington, D.C. Founded in 1977, the Foundation's stated goal is "to defend and promote the principles of freedom and justice." The organization promotes pro-business and free-market positions and is widely perceived as...
- Coverage of controversial short-selling 'conspiracy' lawsuits by tobacco litigation specialists in US: Short Tempers, Risk Magazine (2006), Navroz Patel
- In pursuit of the naked short, Journal of Law and Business, New York University, Spring 2009