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Cabinet backs wider ban on naked short trading

AFP/DPA/The Local · 2 Jun 2010, 16:07

Published: 02 Jun 2010 13:43 GMT+02:00
Updated: 02 Jun 2010 16:07 GMT+02:00

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The ban "concerns securities that are registered on a regulated German market," a Finance Ministry spokesman said.

It also encompasses certain trades on currencies that are not used for hedging purposes, although this can be implemented in times of crisis, not as a permanent measure - a slight watering-down of the original proposals.

A previous version of the draft law had envisaged a complete ban on short selling currency derivatives.

German Finance Minister Wolfgang Schäuble on Wednesday said naked short selling had been used on a "no longer controllable scale" during the recent eurozone financial crisis sparked by Greece's debt problems.

"That's why were are banning them," he said.

Last month, Germany rocked its European partners and roiled markets worldwide by unveiling, out of the blue, a ban on naked short selling of sovereign bonds and credit default swaps.

The surprise move, by Germany's financial regulator, was introduced unilaterally and without informing other G20 countries.

Naked short selling is effectively a bet that a certain stock or government bond will go down on the markets. But unlike conventional short selling, a trader does not even borrow the stock or bond before it is traded.

The practice came under fire as the Greek debt crisis escalated. Many analysts said that such trades artificially inflated Greece's funding costs.

Critics of the practice also say it can create highly damaging volatility on financial markets.

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However, most short selling takes place in London and it is not a common practice in Germany.

Defending the ban at the time, Berlin said it wished to "send out a clear signal to the markets that we want to act where we are able to ... in order to tackle excessive speculation."

The draft bill now passes to the German parliament, where Chancellor Angela Merkel's centre-right coalition holds a clear majority.

AFP/DPA/The Local (news@thelocal.de)

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Your comments about this article

15:51 June 2, 2010 by William Thirteen
rather than demonstrating their ignorance of global finance by coming up with these ineffectual crowdpleasers they should rub together their few remaining neurons with the rest of the mouth breathers in brussels to develop eurozone-wide regulatory policies which will actually make a difference in safeguarding the region's economies...
18:43 June 2, 2010 by michael4096

I've seen these rather arrogant "ignorance" comments before. However, I've never seen any good reason for why being able to sell something you don't have is good in finance markets when is is bad in the rest of human endevour. Perhaps, you can explain.
22:23 June 2, 2010 by HANNIBAL-BARCA
If the company (fx,commodity, et.al) was good, it likely would not be shorted. If the company was shorted even though it had unrealized value, then it becomes a good buy.

It's a tad of an overstatement to call it "naked short-selling" as such... I'm tempted to provide a concise answer to those living in capitalist system, though not themselves capitalist, but really, I would advise that if your really concerned, take some classes on trading...
23:39 June 2, 2010 by wood artist
Although others may have different opinions, I think the biggest reason to ban naked short selling is that if done properly, it can cause the very thing it seeks. If the word gets around that enough people are shorting a stock, it will fall, simply because investors will start to sense a lack of confidence.

That, of course, completely ignores the fact that the person selling neither owns nor has even bothered to borrow the stock in question, so he's selling something that exists only in his mind, and the paper you get is worth exactly what he paid for it: Nothing!

This type of behavior has made the markets little more than a casino, where the house not only runs the game and takes a commission for running it, but then also bets against you. In no other place would this type of operation be considered legal or ethical.

10:35 June 3, 2010 by michael4096
@WA - agreed

@Hannibal - I understand the theory. However, you haven't said why selling paper you don't have is good while selling, say, an eiffel tower you don't have is fraud.

The answer must be easy, after all, according to William, not knowing is ignorance.
11:05 June 3, 2010 by HANNIBAL-BARCA
@michale4096- If you understood the "theory" you wouldn't ask such a question. If you assume a myopic view of "good" & "bad" then you will remain in ignorance. Trying to compare the capital markets concept of ownership and rights to ownership, with the selling of an Eiffel Tower, just misses the mark.

Further why do you look to the Government to stop injustice when the Government itself is unjust? When you can purge man of all unjust actions, only then will you have just markets.

The answer doesn't have to be easy. Not knowing is ignorance, which is why I suggest those sincere in their interest, take some classes or at least read some books.
13:03 June 3, 2010 by MunchingInMuenchen
I trade in my shorts and also sometimes naked, so I'm screwed either way....
17:37 June 3, 2010 by William Thirteen

i have no firm position on naked short selling as i don't understand enough about it to reach a conclusion. my contempt for this ban is based on my understanding that most of the naked short selling action happens outside Germany and thus this ban will have no appreciable effect. But my more strongly held concern is that these unilateral, demagogic actions will do nothing to actually prevent future financial crises but, by preempting regionwide, considered action and careful regulation, will actually make them more likely due to a false sense of safety. In essence, that they are CYA responses by clueless politicians who are closing the barn door long after the horse has not only gotten out, but has been caught by rustlers in pinstripes and sold on to Lloyd Blankfein's glue factory...
18:11 June 3, 2010 by michael4096

As a principal designer of one of the world's biggest stock exchanges, I know a reasonable amount of trading theory. For example, I know that traders can act like sheep - human and robot - and this combined with shorting destabilizes markets. I also know that gambling on fluctuations unassociated with the underlying asset value reduces market transparency.

I can give a couple of examples of why I think shorting can be harmful (as you don't seem to like colloquialisms.) Why do you find it so difficult to provide a sentence covering its desirability?


I happily consider myself ignorant on the desirability or not of shorting. However, if angie's evono-team are equally ignorant, as you asserted, I want to know why so that I can claim my money back - I pay their salaries!
22:43 June 3, 2010 by Der Grenadier aus Aachen
I think the law primarily passed as a signal to Brussels for more effective market regulation.

As for naked short selling as a topic, you can argue this to death, but there are numerous economists with gravitas that often give it as a factor in unstable markets. So, I don't think the government's decision in this is ill-considered.
01:10 June 4, 2010 by William Thirteen
yes, i pay their salaries as well and i have to say that my respect for their acumen has eroded only slightly slower than the value of the bottom traunch of a cubed CDO! I suppose only time will tell whether this action springs from an actual intent to protect the economy or is just throwing mud against a wall to see if it sticks. Somehow either way, i don't think we will be seeing our taxes again anytime soon!
22:49 June 5, 2010 by Tony Ryals
Angela Merkel is pulling your middle leg and SEC Inspector General H.David Kotz should be investigated along with ex SEC Chairman Christopher ¦#39;Naked Shorts¦#39; Cox who put him in his dictatorial political appointed position.H.David Kotz has misinformed if not out and out lied about the supposed danger of ¦#39;naked short selling¦#39; and even met personally with one of the foremost penny stock scoundrels of our age,David Patch,who has lied about innumerable U.S.penny stocks (hundreds, thousands?) being victims of ¦#39;naked short selling¦#39; or share counterfeiting or as the Germans and Herr Chancellor Merkel now say it ­ ¦#39;uncovered shorts¦#39; !

The naked short selling claim was and is all a lie and Fannie Mae and Freddie Mac and Novastar Financial, pumped and dumped by Patrick Byrne¦#39;s NCANS mafia,were all ponzi shemes paying dividends on ALL shares until they didn¦#39;t.That means NO NAKED shorting as David Patch and his chief SEC allie,H David Kotz,allude to and as his ex boss,Chris Cox,who put him in his place as IG, erroneously or fraudulently posted on the sec.gov penny stock board,I mean investor education site IN 2008.

Naked short selling¦#39; is the lie heard round the world.At first mentioned only regarding non dividend paying U.S.penny stocks that were pumped and dumped and ¦#39;reverse split¦#39; to death.And then Novastar Financial was pumped and dumped as a victim of naked short selling by Overstock.com¦#39;s Patrick Byrne along with OSTK itself ! He replaced Agora Inc and National Taxpayers Union founder James Dale Davidson¦#39;s NAANSS or National Association Against Naked Short Selling with NCANS or National Coalition Against Naked Shorting in 2005.

Check for yourself if the ¦#39;naked short selling¦#39; term itself the H. David Kotz,et.al. isn¦#39;t a fraudulent hoax that he is allowing James Dale Davidson and his Agora

Inc to shove down the throat of already choaking investors !Note the German term which I believe is newly made up and not a long term stock jargon of Germans is ¦#39;ungedeckten Leerverkäufe¦#39; which translates more directly as ¦#39;uncovered shorts¦#39; as opposed to ¦#39;gedeckte Leerverkäufe¦#39; or ¦#39;covered shorts¦#39;! I hate to be like the boy who cries the king has no clothes but don¦#39;t you see it ­ our own governments are now all lieing about ¦#39;naked short selling¦#39; t distract from other very real forms of insider manipulations they want to cover up ! ? H.David Kotz aids the naked short selling lie of James Dale Davidson that has gone around the world since NAANSS was formed in 2002 and disappeared from imternet in 2005.


SEC Enhances Investor Protections Against Naked Short Selling

FOR IMMEDIATE RELEASE by SEC Chairman Christopher Cox


Washington, D.C., July 15, 2008 ­ The Securities and Exchange Commission today issued an emergency order to enhance investor protections against ¦quot;naked¦quot; short selling in the securities of Fannie Mae, Freddie Mac, and primary dealers at commercial and investment banks.
16:58 June 7, 2010 by William Thirteen
well that was certainly clarifying....
21:39 June 8, 2010 by DavidtheNorseman
I think the problem is that if I'm really rich and I sell all of *your* lederhosen, your pants become worthless. The German government is trying to help Germans not lose their shorts :-) (I know usually the term is "shirts" but I just couldn't help myself.......)

I have no idea how this impacts the German nudist movement but I'm guessing they too would like the option of owning their own shorts............
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