Monkeying with market rules - banning short selling

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On Sunday, South Korea's Financial Services Commission shocked markets when it announced it would prohibit stock short-selling until June 2024 to allow regulators to “actively” improve rules and systems, a move analysts said was "unusual” and “unwarranted” when no (obvious) financial crisis or external shock that would lead to a sell-off exists. The news sent Korean stocks surging in early Monday trade.

In a rehash of various short selling bans implemented in the US during periods of market turmoil, the commission announced that trading with borrowed shares will be banned for equities on the Kospi 200 Index and Kosdaq 150 Index from Monday until the end of June.

“Amidst market turmoil, we’ve discovered massive illegal naked short-selling by global investment banks and circumstances of additional illegal activities,” Financial Services Commission Chairman Kim Joo-hyun told a briefing. “It’s a grave situation where illegal short-selling undermines fair price formation and hurts market confidence.”

Lee Bokhyun, governor of the Financial Supervisory Service watchdog, told reporters about 10 global banks will face investigations which account for most short-selling transactions in South Korea.
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Now do the commodities markets (like gold and silver)....

So does banning short selling ever work out? The New York Fed analysis doesn't seem to think so:

In 2008, U.S. regulators banned the short-selling of financial stocks, fearing that the practice was helping to drive the steep drop in stock prices during the crisis. However, a new look at the effects of such restrictions challenges the notion that short sales exacerbate market downturns in this way. The 2008 ban on short sales failed to slow the decline in the price of financial stocks; in fact, prices fell markedly over the two weeks in which the ban was in effect and stabilized once it was lifted. Similarly, following the downgrade of the U.S. sovereign credit rating in 2011—another notable period of market stress—stocks subject to short-selling restrictions performed worse than stocks free of such restraints.
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Recent research on the 2008 bans allows us to assess the costs and benefits of short-selling restrictions. The preponderance of evidence suggests that the bans did little to slow the decline in the prices of financial stocks. In addition, the bans produced adverse side effects: Trading costs in equity and options markets increased, and stock and options prices uncoupled.
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Taken as a whole, our research challenges the notion that banning short sales during market downturns limits share price declines. If anything, the bans seem to have the unwanted effects of raising trading costs, lowering market liquidity, and preventing short-sellers from rooting out cases of fraud and earnings manipulation. Thus, while short-sellers may bear bad news about companies’ prospects, they do not appear to be driving price declines in markets.

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Because they know what has been happening and what I think is About to be exposed in the USSA. The naked shorting of our market has been legendary.

we’ve discovered massive illegal naked short-selling by global investment banks

Short-selling is SUPPOSED to be a cushion in a suddenly-unfolding stock demise - new, previously-concealed facts emerging; or changing conditions.

The short-sellers provide a market for a declining stock, when no one else is buying. They have to cover their shorts, and of course they do that as a stock price is plunging. A stock in free-fall, with significant shorters, then has a market for shares when the stampede is to sell.

So, stability. It doesn't always work, and especially not in an opaque, manipulated market, driven not by fundamentals but by Fed liquidity loaned to member banks to buy for their house accounts. THAT is what needs to go - Glass-Steagall was one of the few government regulations that HAD a purpose. But since it defeated the social-engineers' needs to launder printed-up fiat, it had to be removed.

A case where there weren't ENOUGH short-sellers, was with the fall of small-player Adelphia Communications. It was publicly-traded but with its founder, John Rigas, as majority owner. Tales of extensive misuse of company funds came out over a month; and the stock went from a $20 solid performer, to pennies a share, before the stock was delisted for bankruptcy.

The sad part of it was, the core business was solvent. The misuse of funds were massive but not enough to bankrupt the company; only corporate debt against the market value of the corporation rendered it insolvent.

Short-sellers in there, could have prevented a two-week plunge of share prices, and allowed regulators to go in, sort things out, make arrests and allow the company to restructure its management.

Short-selling is fine if done properly.

The entire accounting system to make short-selling possible is Fraudulent.

Voodoo said:

Short-selling is fine if done properly.

The entire accounting system to make short-selling possible is Fraudulent.

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How's that? Covered short-selling is fine.

You have time to deliver the shares you've ordered sold. If you hold them in your hand (or account) with authorization use them to transfer to close your own sell order...no problem.

I'm not a stock historian, but I expect that the time lag between placing a sell order and delivering the stock, dates back to the era of physical certificates, which would have to be verified by a broker or other registrar and physically handed over. In this age, instantaneous sales could happen - although it would make paper share certificates unworkable, and thus make the system more prone to problems if a power outage - but, if done that way, we'd see more instantaneous crashes of shares on news...factual or fake. Especially now with stocks traded, not on fundamentals, but on trying to figure out which way the herd is running.

Casey Jones said:

How's that? Covered short-selling is fine.

You have time to deliver the shares you've ordered sold. If you hold them in your hand (or account) with authorization use them to transfer to close your own sell order...no problem.

I'm not a stock historian, but I expect that the time lag between placing a sell order and delivering the stock, dates back to the era of physical certificates, which would have to be verified by a broker or other registrar and physically handed over. In this age, instantaneous sales could happen - although it would make paper share certificates unworkable, and thus make the system more prone to problems if a power outage - but, if done that way, we'd see more instantaneous crashes of shares on news...factual or fake. Especially now with stocks traded, not on fundamentals, but on trying to figure out which way the herd is running.

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There are No physicals certificates anymore. The $EC basically threw them out in ~2009. And the bad guys basically own the clearing firm the DTCC and really Cede & Co. That company basically owns everything in the USSA.

Looks like Korea is now finding out after fucking around:

... overnight (Tuesday in Korea), the equity market crashed, with KASDAQ Futs plunging over 7% at one point..
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Will be nothing compared to what happens here if/when this gets exposed. Also, that's very misleading because its up compared to that long-ago time frame known as two days.