Talk:Short (finance)/Archive 1

Archive 1

This article...

...is almost entirely a translation (seemingly by an online translator, but otherwise just a bad one) of the French article. It's also a long way from NPOV - why is there a section called "The short seller, the all time scapegoat" without quotation. Clearly not encylopaedic. That section also is poorly written; the whole article swings from bias to bias and is thoroughly confusing to a newcomer (me!). Can we do something about this? 203.45.110.245 (talk) 03:27, 28 February 2012 (UTC)

Shorting does not mean borrowing

"n finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party " Surely this opening definition is wrong? You do not, AFAIK, need to borrow anything to short something (naked shorting). You can sell that which you don't have on the promise to deliver later, at today's price and tomorrow's cost. 89.176.34.187 (talk) 23:19, 11 December 2011 (UTC)

You could, yes, but that isn't the classic method of short selling. It's more like a forward sale (and so the same mechanically as a derivative transaction, though not classed as such for regulatory purposes). The classic (and commonly-used) method is as described - borrow, sell, buy, return. Westmorlandia (talk) 18:26, 23 May 2012 (UTC)

Taxes

If a stock goes close to zero & a person thinks it'll stay there,  

they don't have to close the position and taxes can be deferred till the position is closed, years later if things go well. — Preceding unsigned comment added by 71.9.22.214 (talk) 20:23, 19 October 2017 (UTC)

Discussion on merging articles

Merge. The articles should be merged, as both discuss near identical topics. It would be better to make Short Selling a section of Short (finance), though. Just my 2 cents. --Michaelk 14:03, 30 August 2006 (UTC)

• Agree. Short (finance) is not well developed and is extremely similar to Short selling. Recommend section in Short selling regarding holding a short position. ---Tvh2k 14:16, 24 October 2006 (UTC)

• Agree (suggest reverse merge). I'm for the merge, but perhaps it would be better to merge Short selling into Short (finance). "To short" covers buying, holding, and selling. -- Isogolem 19:19, 24 October 2006 (UTC)

Retract suggestion per EncMstr's comment below. -- Isogolem 19:01, 25 October 2006 (UTC)

• Agree. I'm for the merge, but I think would be better to merge Short (finance) into Short selling, becuse Short selling is more descriptive and its article is longer and more detailed. Goodemi 16:48, 25 October 2006 (UTC)

• Merge. I don't particularly care which one is the redirect and which one is the article, but I count 26 main space wikilinks for short (finance) and 89 for short selling. — EncMstr 17:01, 25 October 2006 (UTC)

• Disagree. It's important to recognize the distinctions between a short view and short selling. They're not always the same thing. A short view of market as a whole or a sector, and you really can't buy a market or sector (don't even start about ETFs). You don't have to have a short position to have a short view. Personally, I think that the short selling section on this page should be shortened to bring the article in line with the Long (finance) article. --Srwm4 08:11, 4 December 2006 (UTC)

• Merge Completed Gentlemen, I completed the merge and transcluded the referenced facts from the other article. Anyone interested in integrating further content may find the merged page at [1]. Alan.ca 07:39, 6 January 2007 (UTC)

Shorting a Stock while owning Credit Default Swaps

In 2008, a strategy was to buy the bonds of a near bankrupt company at much less than face value, buy a credit default swap on those bonds and then sell the stock short down to near zero. This would force the company to take emergency financial measures and likely file for bankruptcy. When bankruptcy was filed or the company failed to pay interest on its bonds, the investor would collect 100% of the face value of the bonds from the credit default swap, whatever the market price of the bonds, and whatever the market price of the stock. This is why the US SEC banned short selling in large numbers of financial companies in 2008. —Preceding unsigned comment added by 24.149.211.131 (talk) 22:32, 19 October 2009 (UTC)

All of your assertions are so far from the truth I do not even know where to begin.... Beganlocal (talk) 11:13, 14 February 2010 (UTC)

Covering a short position

investment chit-chat
The following discussion has been closed. Please do not modify it.
Hypothetical scenario: I buy 100 shares of XYZ for 20 a share, and then the price later goes up to 22. I believe that it is possible that it will go down a lot in the near future, so I short 100 shares of XYZ at 22. Instead of going down, however, the stock goes up to 25. Can I use the 100 shares of XYZ that I had originally purchased for 20 a share to cover my short, making a profit of 2 dollars per share? Or do I have to buy another set of 100 shares of XYZ at 25 to cover my short position? I guess what Im really asking is, when you return the shares to the lender, does it matter when you got those shares? Can you cover a short with a previously held long? —Preceding unsigned comment added by 76.170.213.238 (talk) 04:25, 28 March 2008 (UTC) When you buy or sell a stock you are given 4 choices, buy, sell, buy to cover a short, sell to open a short If you buy 1st, then sell short, then want to chose the position, the broker will likely charge you 2 more commissions to close the 2 postions, different brokers can have very different practices. Call yours and ask. -defecator —Preceding unsigned comment added by 76.170.213.238 (talk) 04:21, 28 March 2008 (UTC) Sounds like you are looking for advice. This should be removed. Friedonc (talk) 14:06, 29 August 2008 (UTC) Having read the article, I would ask the same question, & I'm not buying or shorting anything. I found it unclear if "buying" a short pos means I owe the broker the current price, or only the price when I cover the stocks, when they drop as far as I think they're going to. Some clarification? TREKphiler hit me ♠ 00:31, 3 December 2008 (UTC) Assuming these are just general questions, the answer to the first question is "no, it does not matter when you bought the shares", as shares are fungible. What would have happened in this example is that you would have been long for 100 shares while the price rose from 20 to 22. After shorting, you would then have a net exposure of zero to the share price - any profit or loss on the long position would be cancelled exactly by the loss or profit on the short position. In practice, I don't see why anyone would do this - you would just sell the shares you own instead to achieve zero exposure, and save yourself the fee for borrowing the shares for shorting. You might, however, do it the other way round - if you are short on the shares and the position will close at a set date in the future (e.g. shares are at 20, and you have a entered into a forward contract where you will sell shares in 1 month's time at 20, expecting them to fall below that), you can buy the shares whenever you want in the meantime to cover yourself (e.g. prices start to move up and you buy at 22 in the fear that they will rise higher, or prices fall to 15 and you want to lock in the profit). You then pass the shares over at the end of the 1 month. I am not quite sure what the question of the second poster is. When you enter into a short position, you have to repay the broker (who lent the shares to you) in shares, not $ - the price is irrelevant for this purpose. If you are referring to the broker you are buying the shares from the close the position, the relevant price is the price when you buy. The person you buy from may not even know that you are getting the shares to cover a short position - it is like any other purchase. 195.72.169.116 (talk) 12:43, 31 December 2008 (UTC) Sorry to say, but I don't find that any clearer. What I'm getting at is, how is the price I pay established? At the current share price, the "bottom", or somewhere else? TREKphiler hit me ♠ 23:13, 31 December 2008 (UTC)

Removed Joseph Parnes

Removed link that did not appear to be related to the subject. Servalo 15:35, 10 January 2007 (UTC)

Reasons

This article explains reasons for short selling. It does not however discuss why someone allows their stocks/futures/whatever to be borrowed so that someone else may short them. —The preceding unsigned comment was added by 64.126.82.205 (talk) 22:20, 19 February 2007 (UTC).

Yes, I would like to know this too... it's easy to see how the borrower can profit from shorting, but what does the lender have to gain from this? —Preceding unsigned comment added by 154.32.91.68 (talk) 13:23, 28 September 2007 (UTC)

The lender gets an additional risk-free profit as the borrower has to pay fees. At the same time, the lender keeps getting all the dividend or interest distributions and also the right to sell the security at any time he chooses.--87.245.110.218 (talk) 15:57, 28 February 2008 (UTC)

I don't follow the response from User:87.245.110.218. Are you saying the borrower pays fees to the lender? Also, the lender continuing to get dividends/interest and having the right to sell the security is not a benefit obtained from lending -- the lender had those benefits even without the loan. TJRC (talk) 18:37, 28 February 2008 (UTC)

Yes, the borrower pays fees to the lender, which is why the lender does it. You are right that the lender had those other benefits anyway, but I assume they were mentioned just to illustrate the overall view of the economics of the situation. Also bear in mind that the lender will typically be an investment bank that is in the business of lending out shares for these reasons. Art Markham (talk) 15:32, 18 May 2008 (UTC)

Short selling merger not completed

Just FYI, for anyone thinking to edit this page, despite what was said above this merger was only attempted not completed. Short selling is still alive and well. —The preceding unsigned comment was added by Isogolem (talk • contribs) 16:39, 20 February 2007 (UTC).

Added merge templates

I think I'll merge these pages soon. Just in case, I put merge templates up on both Short (finance) and Short selling. Merging the former into the latter looks easier because the latter is longer. --Officiallyover 18:50, 11 May 2007 (UTC)

Merger is needed

I agree that these two articles need to be merged. I just noticed the template in the other article (I think it was added recently, actually) and am surprised that you have two separate articles on the same subject. I would suggest that this article be merged into Short selling. --Samiharris 17:54, 14 May 2007 (UTC)

Mechanism

I think this article still needs more clarity. There are basically two methods of selling short. In essence it always involves creating a situation where you have an obligation to give someone an asset when you don't actually have it. This situation can be created by either:

• making a promise to sell something you don't have at a future date (the original method), or
• borrowing something from someone in order to return it at a given date in the future and then disposing of it in the meantime.

Once the situation is created, clearly you need to acquire (or re-acquire) at a later date in order to return the asset. You can see that it is very similar in each case when you strip it down, so I don't see why there is such disagreement between the market-orientated writers and the non-market people. The thinking behind each method is a little different.

• In the first method there are two main reasons to do it. Either it is more convenient to sell before production in order to provide certainty, or, in financial markets, you are making a kind of bet with the other party - he thinks the asset will be worth more at that future date than you do, so he buys it at a higher price than you think it will be worth. If you're right you can enter the market immediately before you owe him the asset and buy it before selling it to him at the sale price, making yourself a profit (and if you're wrong, you lose out).
• In the second method, well, someone else explain that because my supervisor is returning!

Short Sale Redirection - Please Correct

Guys can we change the redirection of Short sales going to short selling. Short Sales is seen a advanced real estate technique. A short sale in real estate occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for, so a investor will negotiate with the bank (or other) and get a discount on the mortgage. The bank benefits as it dosn't have to go through foreclosure (which costs approximalty $32,000 per property, and the investor can make a unprofitable deal profitable).

Shorting bonds

This article is almost completely about equity trading, although shorting is routinely done in debt markets as well. I will try to get to this sometime. Also, more links are needed to Securities lending and Repo. RobLinwood 00:05, 17 April 2006 (UTC)

Borrowing Stock

Could someone add as a sub-point under "mechanism" or elsewhere how you "borrow" stock? What's missing from my understanding in all this is how you "borrow" stock in the first place. I thought people traded/bought stock. The entire entry is obfuscating to those who aren't familiar with stock-trading because nothing makes sense after "one borrows stock". To wrap this definition up nicely I hope someone will explain that. If someone comes to the entry with a basic knowledge level of trading, I'm sure it reads well. If not...

You borrow stock just like you borrow money - i.e. someone gives it to you, and you promise to give it back later. The lender is usually an investment bank, who is the business of doing this. Art Markham (talk) 15:36, 18 May 2008 (UTC)

Futures

• All I wanted to say was that in futures, short selling is selling a contract “before,” you buy it. That is the essence of the thing.

In order to balance the non-universal explanation I will explain shorting futures as it is mis-explained above. GT

• In futures, shorting brings with it an obligation to deliver in the future. Sellers are not selling something that they do not own yet, they may be selling something that is not even planted yet. In fact a farmer may have to pre-sell his crop to get the funds for seed. There is no borrowing of any securities like with stocks. The clearinghouse only as a good faith deposit, holds margin. There is no interest or dividends to be paid. There is no deterioration of your capital because of time as there may be with options. When there is no fluctuation in price it does not cost anything to maintain a short futures position. New contracts are only created out of open interest increasing transactions involving a new seller and a new buyer. Selling short futures does not mean that you owe a negative amount of anything. The seller may have it offset with actuals or a long position in something else.

Traders who trade spreads do not hope that prices fall. They may in fact own actuals in greater number than the short position. As when a rancher pre-sells part of his herd by shorting futures. Spread traders may be depending on their shorts to continue going up, just at a slower rate than the long side of the spread. The short side may be just to minimize drawdowns, reduce margin requirements and increase return on margin. It may not be expected to move at all, which is quite common. GT

I have changed the definition for "short futures" to say: "...usually before it is produced or bought."; I hope this is general enough to please everyone here... OwenX 19:57, 27 Jan 2005 (UTC)

It is not a true statement as concerns futures. Suppose you go short to spread a long position in Eurodollars. They are already produced and in this case you are not selling the Eurodollars before they are bought. Futures can be slippery. GT

Link Spam Removed

Stock Market News - Website providing daily news and tips on stock market selling and trading. Offers tips on short selling.

It reported this address - ttp:/moneyplans.net/

Obligations to Deliver

Why is this one sentance?

In finance, short selling is selling something that one does not (yet) own. In futures, short implies an obligation to deliver something before it is bought.

The definition “something that one does not (yet) own.” Does not apply to futures. You may already own it. It is a separate explanation so it should be put on a separate line. If you are an expert in finance, I suggest that you clean up your act. If your have expertise in futures, than you can see the absurdity of the connection. It is too limited for U.S. futures markets, as they exist today.

We don’t trade in ownership as much as we trade "obligations," to deliver or receive. These agreements are called contracts. "A contract is any promise or set of promises made by one party to another for the breach of which the law provides a remedy. The promise or promises may be express (either written or oral) or may be implied from circumstances." GT

Term “short”

the page says, and this is about stocks, it says:

“It is possible that the term "short" derives from the name of a notorious stock broker of the 1920s that used the practice to defraud his customers”

How do you explain:

“ Although the Amsterdam bourse maintained that the decline in the East India stock was due to poor business conditions - not short-selling, in 1610 the government outlawed all short sales. As with most laws seeking to curtail the activities of bears - the market's natural libertarians - this edict was a dead letter from the start. The Dutch banned short-selling again in 1621 but to no effect.” [2]

The Dutch banned short-selling a mere 300 years before your universal short selling page says it originated from defrauding customers. GT

The practice of short selling may have existed under a different name, or without a special name of its own, long before the name "short selling" for this practice was coined. I read the statement about the 1920s as a discussion of the origins of the name, not the origins of the practice.66.203.174.9 14:19, 22 May 2005 (UTC)

The statement on the possible derivation of "short" is wrong and should be removed. The term was in use far earlier, probably going back to the beginnings of the stock exchange. More research would be required to find very early sources for the term, but some examples found online in the NYT archives and other sources include:

"There was unusual activity in Delaware & Hudson, the depression on Saturday by a short sale at 109 bringing in new buyers..." (NYT, March 9, 1852, pg.4)[3]

"The 'cornering' process, or 'getting up a corner,'is the act of a combination of operators, and is always the result of short sales" (Groesbeck, John, The Crittenden commercial arithmetic and business manual, Philadelphia, 1867, pg. 127)[4]

"To 'buy in'. The act of purchasing stock in order to meet a 'short' contract, or to enable one to return stock which has been borrowed." (Medbery, James Knowles, Men and mysteries of Wall street, Boston,: Fields, Osgood & co., 1870, pg. 134)[5] --JJay 13:14, 8 October 2005 (UTC)

Margin Call

1) I think the term "margin call" should be added:

A demand by a broker for additional funds, additional money or securities, because of an adverse price movement in one or more of your held securities to bring a margin account up to the minimum maintenance margin.

A broker will make a margin call if the price of one or more of the securities you have bought, with borrowed money, moves adversely (usually droping, but rising if shorting) past a certain point.

This is my definition i pieced together in my own words from many sources, it maybe incorrect so could someone please verify it (esp. the adverse part about marginal calls during rising securities during shorting).

2) Also "over-leveraging" is another that should be added, overextending yourself by shorting more then your ability to pay off in the event of a margin call.

ShaunMacPherson

That all looks good, Shaun. Please feel free to add yourself. No-one will bite your head off :).

2) Over extending yourself has nothing to do with weather you are long or short or both long and short. It can also be caused by withdrawing funds from your account or an unexpected drawdown. They can also raise margins on you without prior notice.

Margin calls are just the result of being unable to maintain minimum margin overnight. You can manage margin just by adjusting your position size. GT

Invalid link - Bear raids

There's this link about Bear Raids and Uptick Rule but theres no atricle on it??

Can some1 pls post it because i wanted to know about it

Futures, options, spreads

"Why separate between Futures and Options? The two work exactly the same as far as short selling is concerned. Borrowing is just as irrelevant for options as it is for futures. Either add the comment to both, or remove it from both. Goldtrader, what's the obsession with the seasonal spread? If you think spreads don't have a place under this entry, let's take it out too." OwenX

Options main advantage accrues to the seller. Futures are a fair game, 50/50. The advantages we get from shorting futures are not available to option players. You do not understand one side of the other if you think they are exactly the same. My specialty is futures spreads, I can't speak for the options. Correct me where I am wrong. But I do know when someone is slinging it as concerns futures contracts.

I do not know why someone added the borrowing nonsense on there but I am now making it temporarily distinct from stocks also. The whole post is slanted against short sellers as it is. There is nothing negative or non-positive among anyone except pure amateurs about shorting futures. I trade spreads, if anything it’s this slanted anti-shorting baloney that has no place in an encyclopedia.

My obsession is with the mis-information that is perpetrated on the investing public by people how should know better.GT

Universal and neutral

The previous definition of short selling is out and out wrong. The definition should be universal and neutral. What you have there is a load of mis-information. It is misleading and untrue. It only applies to one small highly regulated use. Maybe you should change the name to something like “short selling (stocks only),” because it sure does not apply to real estate or normal businesses.

The current page says “In order to sell something short, one must borrow it from someone else.” Bill Gates did not have to borrow something from someone else, and he was selling short. How do you explain that?

I can sell 5,000 bushels of November Corn, I do not have to borrow anything. How can this page be true?

When Bill Gates sold an operating system he “did not have,” to IBM. Gates was selling short. He sold something before he bought it. He did not adhere to all these things this writer says. Short selling futures, real estate, and fungible property is a part of the Speculation business and it does not fit the current limited description used under this heading for selling short. GT

Removed Futures

• It is clear that stock people do not have a clue about shorting futures GT

• Whether or not they have a clue, you can't just decide you don't like to hear about it and delete it all. I rewrote the Futures section carefully. It is correct as written; a hundred thousand futures traders (myself included) aren't all wrong calling it "short" just because Mr. GoldTrader said so. Deal with it. OwenX 22:50, 27 Jan 2005 (UTC)

Speculation

Short Selling may be Speculation but I am not comfortable calling it Category:Investing [GT]

The two are not contradictory; the dictionary defines "investing" as committing money in order to earn a financial return. This means that 'speculating' is just one form of investing. Also, when it comes to categories, terms such as "Capital Loss", "Arbitrage" and even the term "Speculator" are all part of the "Investing" category, since they are all part of the investment world. More specifically, a market-neutral portfolio--which is the preferred investment of many institutional investors--will always contain short positions. There is nothing speculative about it; it is carefully crafted and calculated to hedge out general market fluctuations. OwenX 16:14, 26 Mar 2005 (UTC)

= Accuracy disputes--any left? ==I believe that 2 seperate laws or regulations have recently ended, expired , and/or not renewed, resigned into law or extended which allows short selling and/or hedge funds to take advantage which in IMO is adding to the serious decline of the market and failure of many Banks, Financial Institutions,ETC. The last part being my opinion but correct me if wrong about the laws and regulations. W.R. Boyd

Things seem to have settled down around here. Are there any open issues we have to settle? If there are no objections, I'll remove the Category:Accuracy_disputes tag. Owen× ☎ 18:46, 28 August 2005 (UTC)

Actually the article contained several inaccuracies that I removed. It stated that the uptick rule does not apply to Nasdaq securities, but that was not true. This article is quite a mess so you might want to reinstate the tag.--Lastexit 19:03, 22 April 2006 (UTC)

Nasdaq securities have an "up-bid" rule, not an uptick rule. Additionally, "Pilot" securities on the NYSE are subject to no tick rule whatsoever.--Son of Scholes 14:40, 6 August 2006 (UTC)

When was legislation introduced to ban short selling of IPOs for 1 Month?

Are there legislative initiatives to repeal this ban?

Question

Why would the seller buy the stocks and lose $500 instead of simply keeping the $1000? Am I missing something?

He is not losing. All the operations are based on the assumption that a certain share would fall in price within a period of time, let's say within a week. Imagine that, according to your analysis, or to the market rumors, you feel that a google share price would fall because of a reason. Let's see:

• You borrow a stock of Google from the brokerage firm for a week.
• You sell it in the market for a 100 the first day (though you never owned it)
• Anytime within the week, you can buy it back. The fact is that you'll wait for the price to fall down so you can pay 80, let's say, for the same share you had sold for a 100. You make a profit of 20.
• You return the share back to their original owner. You pay the firm a fee and you get away with a profit. -- Svest 00:37, 5 December 2005 (UTC)  ^{Wiki me up™}

Can someone explain the dividend payment on short sale better? Investor S borrows 100 shares of XYZ from Investor O, company XYZ pays a dividend of $50 while the short position is open. Investor S has to pay $50 to investor O, but who gets the $50 that the company paid out?

Whoever bought the shares from Investor S. Remember, the only reason S borrows the shares is to immediately sell them to Investor B. As far as Company XYZ is concerned, B is the only one entitled to the dividend. Owen× ☎ 14:56, 10 June 2007 (UTC)

Cleanup

I tried to make the example in the first paragraph clearer. It could probably still use some work. Msridhar

This article is poorly written, disorganized, and, I believe, heavily skewed against short-selling. I have attempted to restore balance but I believe that far more work is needed.--Lastexit 18:59, 22 April 2006 (UTC)

I have started to make some changes to the article. I am a short seller, so I can help to bring it back towards NPOV from its current skew against shorting. Goodemi 15:46, 4 August 2006 (UTC)

Is there a reason why many sections of this article is written in the second person? It reads more like a guide from a broker's FAQ than an actual encyclopedia.24.195.250.143 22:13, 8 November 2006 (UTC)

This article is NPOV yes and totally skewed towards glamorizing short selling by going on and on about all it's ways and profits, the only balancing paragraph is little is weakly written. The entire article should be reduced in size and the criticism paragraph needs more clarity.--Tallard (talk) 14:36, 6 January 2009 (UTC)

I tried to make the first couple of sentences gender-neutral. I'm going to need to come back and double check the entire section to make sure it's gender-neutral. --HACKhalo2 (talk) 02:24, 24 March 2010 (UTC)

Merge from Short (finance)

Please see discussion on merger: Talk:Short (finance) ---Tvh2k 14:15, 24 October 2006 (UTC)

I would be against the merge. Though short selling is based on keeping a short position on the stock, you can shouw a short position simply through derrivatives, not just short selling. --Srwm4 08:06, 4 December 2006 (UTC)

Currency

Am I wrong or the example made with the currency edging is incorrect?

Borrowing

Why on Earth would anybody lend someone some shares in the first place for something other than shortselling? —The preceding unsigned comment was added by Energman (talk • contribs) 14:14, 7 December 2006 (UTC).

Are you suggesting that to lend for the purpose of someone's short sale is somehow not OK? That's kind of what it sounds like, but I can't tell. Or, are you actually asking this question because you want to know if there is another reason to _borrow_ a stock?

I don't know of another way that someone would use a borrowed stock, but the answer to the part about "why would someone lend it" is that A) Why not? There's extremely little risk. They'll almost certainly get back their shares, which they intended to hold anyway, even through a temporary price decline. And, B) Why so? They charge fees for this service, so they make money. The fact that someone else might make even more money on the borrowed stock is not a reason for the lender to not lend it.

Cash works this way too. Why would anyone lend cash for some reason other than enabling the borrower to make money? Borrowers turn cash into capital which will yield a greater return than what they must pay to the lender in interest. That's why people borrow cash. It doesn't stop the lender from making _their_ profit, and lenders themselves aren't in the business of turning cash into whatever of 10,000 forms of capital their borrowers are getting rich from, which is why the lenders don't themselves make those potentially greater-returning capital investments. Of course you understand, I'm not talking about consumer loans here - consumers won't profit from their car, creditcard, home-equity etc. loans. 198.49.180.40 16:37, 15 August 2007 (UTC)

User 198.49.180.40 offers a trite 'Why Not' as a reason. There is certainly more to it than that. Reason number one is that the lender is simply not aware that his shares have been lent. eg. while the fine print of margin accounts in US and Canada state that owners assets may be borrowed without notice, few people read such fine print and even fewer understand the implications (of shorters using their asset to weaken their asset by finding a surrogate [new] owner). One might wonder what would happen if this is ever advertised. Brokers setting up a clients' account will never bother mentioning this and if at all possible, they encourage clients to use margin instead of cash accounts for convenience in settling trades without exceeding the account limits. Secondly, mutual and pension funds operate at arms length to the beneficiaries and have very different interests than beneficiaries. The manager is judged by whether he beats the index not by whether he protects his clients capital for retirement. Logically, all a manager has to do to beat the index is to buy the index and loan it out again for say a 5%/a loan fee. He could care less if his actions result in the index being undermined by this strategy, he will beat it and just says to his gullible audience: "what can i do, everything went down". As above, all this lending is covered by fine print which clients seldom read /understand. Imagine a pensioner trying to understand this stuff.

User 198.49.180.40 makes a good point in comparing the loaning of cash and gives a good description of how surplus cash is loaned out to "those potentially greater-returning capital investments". What this fails to convey to the uninitiated however, is that the benefit (to society) of capital investment is increased wealth while share assets loaned to a shorter invariably weaken the asset (decreases societal wealth) by virtue of expanding the universe of owners to include new owners without erasing the old owners. There are now two owners of the same shares, despite legal ledgermain saying otherwise, just that the two owners differ in one important detail -- voting rights go to the new surrogate owner. Canbyte (talk) 03:07, 4 June 2009 (UTC)

Short and distort

I recently became aware of this article, and proposed it for deletion as a neologism and as a POV fork. A user objected. I have tried to wrestle with the more formal process but was unable to manage it. Would appreciate some technical assistance or, if you disagree, some additional evidence in support of this article.--Samiharris 15:27, 15 April 2007 (UTC)

Short (finance)

It just came to my attention that there is a duplicative article called Short (finance). It was agreed some months ago that that article would be merged into this one, with this one the surviving entity in the merger (so to speak). Can something be done to effectuate this badly needed M&A? Am surprised it hasn't been done already. Perhaps someone needs to approach Morgan Stanley for merger financing. ;)--Samiharris 17:58, 14 May 2007 (UTC)

Opening Paragraph

Why is an example of insider trading used to describe a futures/options short in the opening paragraph? This needlessly complicates the description and casts a bias against shorting. 144.226.230.36 13:55, 25 June 2007 (UTC)

I'll admit the writing isn't great, but I don't see the bias.--Samiharris 15:01, 29 September 2007 (UTC)

Sami, here's an example of what seems to be bias, though later in the story: "It was perceived as a magnifying effect in the violent downturn in the Dutch tulip market in the seventeenth century."

No actual contemporary "perception" of this "violent" magnification is cited as evidence. It just seems one of the touches designed to imply "short sellers have always been causing trouble, even in the days of wooden shoes!" --Christofurio (talk) 00:49, 24 March 2008 (UTC)

Check fact: "this law was lifted in 1947"

User 68.11.53.183 changed this sentence from 1947 to 1997, can someone please verify this? Otherwise, please revert vandalism. Thanks. Finnancier 13:35, 24 October 2007 (UTC)

Short interest versus short volume

Noticed there's a mistake in the article on "Sources of short interest data". I know for a fact that short interest data is NOT available in Hong Kong.

Short "volume" is. I understand this is the case for many countries and need to be checked.

There is a subtle but significant difference between short volume and short interest. —Preceding unsigned comment added by 203.210.79.192 (talk) 02:57, 31 March 2008 (UTC)

"This" referent & dramatic results

In the first paragraph of "Concept" we have this confusing passage:

"The lender of the shares does not lose the right to sell the shares. While the shares are lent, two investors have a right to sell the same shares. This has happened in 2007 in the UK with dramatic results, when shares in a Bank, Northern Rock, were £12 in February 2007 and £2 in September. Short sellers made over £1 billion in about seven months.[2]"

It's not clear what "this" refers to. Is there any evidence that the Northern Rock collapse was caused by two investors selling the same shares (as this passage implies)? The citation does not clarify; it sounds like an ordinary case of a collapsing stock that was heavily shorted. Also, is it true that two investors have a right to sell the same shares? If so, this fact bears more explanation, perhaps in a different section, and not in this overview. Ezrakilty (talk) 12:00, 12 April 2008 (UTC)

It looks like nonsense to me - firstly because the broker who lent originally does not sell the shares that he lent - if anything he sells the shares that he will receive back, but more accurately he sells the right to receive the shares back. Secondly, "more people selling" doesn't cause prices to fall, because there are the same number of purchases as sales, clearly, so increasing the volume of share sales also increases the volume of purchases. Thirdly, the assumed link is dubious anyway and totally unsupported. Art Markham (talk) 15:51, 18 May 2008 (UTC)

The first sentence is correct. In most instances, the "lender" does not even know that he has loaned the shares. He loses no rights, including the right to sell. The second sentence is incorrect. Having sold the borrowed shares, the short seller has no further right to sell. That is confusing. So is the example.--Bassettcat (talk) 18:05, 18 May 2008 (UTC)

But when the short seller borrows the shares, he must be given the right to sell them in order to allow him to sell them once, which is the whole purpose. It is the lender that can't give someone else the 'actual' shares while they are lent (though he can do something similar by selling his rights over the shares, i.e. the right to receive them back and usually the right to any dividend, which is economically equivalent). It's no different to a bank lending $1000 - it has the right to receive it back, and can sell someone else the loan (i.e. that right to receive it back), but it can't actually put that same $1000 into someone else's bank account until it receives it back from the borrower. The borrower doesn't need to keep the $1000 in the meantime, as it is his for the duration. Art Markham (talk) 14:15, 8 June 2008 (UTC)

I received this message on my talk page, but as it was from an IP I am not sure who it was, so I am posting it here as it relates to this:

"Borrowing a stock IS different than borrowing money, or borrowing, say a car. When you borrow a car, the lender of the car no longer has use of the car. When you borrow stock, from say, HolderA, HolderA continues to own the stock and enjoy the usual benefits of the stock (he gets the dividend and the stock shows up as an asset in his account with NO corresponding liability.) What has happened is you really have borrowed the stock from the broker. When the broker "lends" you the stock for a short sale, the broker really CREATES an additional share of stock (yes this is true). This additional share of stock is then lent to HolderB. HolderB has full ownership privileges of this stock. He gets the dividend and has it show as an asset in his account.

Let us say a company has issued one million shares. Now Shortie shorts 100,000 shares (Shortie's broker does the borrow from HolderA and lends to Shortie). Now Shortie sells the stock to HolderB (using broker). Both HolderA and HolderB own the stock, get the dividend, and have the stock listed as an asset with no corresponding liability. The broker has, in effect, created ADDITIONAL shares of stock. Now there are owners of 1,100,000 shares of stock, for a company that has issued 1,000,000 shares of stock.

The above example shows how a retail broker like Schwab does a short sale. It is true that institutions operate a little differently in that a big institution, say Calpers, actually does "lend" their stock to someone and does, indeed show a liability on their sheets. But the idea is the same, shorting creates additional shares of stock. Now when the short is covered those additional shares disappear.

In an earlier version of this Wikipedia subject I wrote 2 paragraphs explaining just what I wrote above, but someone deleted it.

Again: 1. HolderA buys a share of stock. 2. Shortie "borrows" share of stock from HolderA (through broker). 3. Shortie sells share of stock to HolderB (through broker). 4. A dividend comes from the company that originally issued the stock and goes to HolderA. 5. Shortie has to pay the dividend to HolderB

The issue of understanding the dividend is critical to understanding the process because HolderA gets a dividend and HolderB gets a dividend PROVING that an addition share of stock was "created"."

As a matter of corporate law, it is absolutely impossible for a broker to create more shares in another company. I think this comment may be talking about rehypothecation, where stocks held by a prime broker (the legal owner) on behalf of HolderA (the beneficial owner, at least until rehypothecation) are lent out for shorting purposes to Shortie, who sells to HolderB (who becomes legal and beneficial owner and can walk away). HolderA's account still shows the shares, meaning it has a contractual entitlement to receive them from the prime broker, but an account entry is entirely different from actual ownership. The share no longer physically reside with the prime broker and the prime broker will not get any dividend from the company - the company doesn't, in the example above, suddenly have to pay 10% more in dividend. A "dividend" payment may be paid to HolderA by the prime broker from fees received from Shortie (as HolderA is unlikely to know that his assets have been rehypothecated). Once the position is covered, the shares (which will be bought from HolderC) are again held by the prime broker (as legal owner) on behalf of HolderA (the beneficial owner).

Alternatively, this can all be done by derivatives, in which case HolderA is redundant anyway. But while my understanding of what is done in practice may be imperfect (there being many possible variations), I do know perfectly well that some things cannot be done - prime brokers creating more actual shares being one of them. I think we need to keep these concepts clear in the article. Art Markham (talk) 16:11, 12 March 2009 (UTC)

It seems to me that the fact that ANOTHER dividend has to be ponied up is PROOF that ANOTHER share of stock has been created. Created by whom? Well, by the broker. He has the right to do this, by virtue of the shorting process. Understanding the dividend is key to understanding the process.

Also, the fact that ONE owner of the shares DOES NOT HAVE VOTING RIGHTS is further PROOF that additional shares are created.

Also, look at the float reports. Some stocks are listed as having float of MORE than 100% !!! How is this possible? It is because of the short interest. —Preceding unsigned comment added by Pilotwiki (talk • contribs) 22:12, 8 April 2009 (UTC)

Shorting wheat

We currently have this example of a short: "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." Is this right? Locking in a price in this way is just an ordinary future, not necessarily long or short in any way. True, the farmer is shielded against price falls, but he doesn't profit any more if the price falls than if it rises - the point is that he now has no interest in whether the price rises or falls. Art Markham (talk) 16:09, 18 May 2008 (UTC)

He's selling now wheat that he doesn't yet have. That's short, whether the transaction is conducted in futures or not. 76.200.153.78 (talk) 20:56, 7 June 2008 (UTC)

Sure, but my understanding of being "short" is that you stand to profit from a fall in price. Additionally, the intro says that "Similarly, a short position in a futures contract, or to be short a futures contract, means the holder of the position has an obligation to buy the underlying asset at a later date, to close out the position." In this case the farmer isn't buying or selling the asset to close the position - he's making it. Price moves are therefore irrelevant to him once he has signed the contract. Art Markham (talk) 14:03, 8 June 2008 (UTC)

Well I suppose it's a bit like being naked short. His risk profile is that maybe the wheat crop will fail and that the price of wheat will rise significantly80.188.92.247 (talk) 21:49, 17 September 2008 (UTC)

Repurchasing...for the first time

Concerning the otherwise clear first sentence, can one repurchase [sic] something one never purchased to begin with? This seems (to me) to obfuscate a clear concept. My background is engineering, not finance, so I will not be so bold as to make the edit. Thanks. OldZeb (talk) 03:30, 19 September 2008 (UTC)

Yes, one can: to repurchase is "To buy back or again; to regain by purchase." The mistake you've made here is to assume that the "re-" prefix always means "again"; in this case, it has (or can have) the alternative meaning of "backward" - if you held the shares before, even if you didn't purchase them, you are purchasing them back; so, "repurchasing". - IMSoP (talk) 22:53, 20 September 2008 (UTC)

Thanks IMSoP, for pointing out my mistake. So one can also re-gain that which one never gained as well, I suppose? We'll just have to agree to disagree on this as further discussion might cause me to regurgitate a premise that I didn't swallow to begin with. Cheers! OldZeb (talk) 05:42, 2 October 2008 (UTC)

Forget the explanation by doofus above.

In a short-sale transaction borrowed stock is purchased by someone. The short position can later be closed by ‘covering’ the short position. This is done by purchasing the borrowed stock. Hence, in a roundtrip transaction, there are two purchases. The purchasing of XYZ stock is redone, but not by the same individual. Because purchase of XYZ is done by the Buyer and then redone by the covering Short Seller, it can be said to be repurchased even though the covering Short Seller is purchasing the stock his first time. Stock is ‘repurchased’ not in the context of the Short Seller alone but in the context of the full roundtrip transaction.

And yes, ‘re-‘ does mean ‘again’. Stock is purchased by the Buyer and later, stock is again purchased by the covering Short Seller. —Preceding unsigned comment added by 98.143.107.157 (talk) 13:07, 16 June 2010 (UTC)

The Dividend

Could someone please help make some sense of this section? I would expect it to explain who receives the dividend and why.Bob D (talk) 08:00, 19 September 2008 (UTC)

Ban in Australia

"On September 22, Australia enacted even more extensive measures with a total ban of short selling." reference number 7. From this article I can assume that Australia has banned short selling. But from that source I read that the ban will only last for 30 days starting from September 22. However I might be reading this wrong, I don't really understand how markets work, just wasn't sure if it was banned forever like this article suggests or suspended for only 30 days like the source for this article suggests. JayKeaton (talk) 06:03, 30 September 2008 (UTC)

Lender motivation?

I'm a bit confused on what the lender's motivation is to lend instruments. Naked short selling says:

Because the seller/borrower is generally required to make a deposit for the full share price with the lender, it also provides the lender with interest on a position that he was not actively trading.

This article says that the borrower pays a fee upon return of the instruments, and does not mention any deposit. Both of these seem like pretty good reasons to lend instruments, but which is actually done? Also, it might be good to discuss the risks to the lender, such as the short seller being unable to return the instruments in full due to a sharp increase in price, and how the lender benefits by lending instead of selling high and then buying low (presumably, they would rather allow the short seller to assume the risk). Dcoetzee 02:11, 14 October 2008 (UTC)

Better explanation needed

This needs a simpler explanation for people who do not have a higher degree in economics. It seems counter intuitive that you buy something at a price, then when the price falls you sell it and earn more. --IceHunter (talk) 00:10, 22 January 2009 (UTC)

That isn't what you do - you sell it at a price, then when the price falls you buy it and earn more. I think the article does more or less say that. Westmorlandia (talk) 22:58, 11 May 2009 (UTC)

Buffett incorrectly attributed in Criticism section

In the Criticism section is the statement " while Buffett believes that short sellers are useful in uncovering fraudulent accounting and other problems at companies ". The linked article does NOT state Buffett believes that. It states that Buffett has noticed a PARTIAL correlation with LARGE short interest and fraudulent companies. His comments and CM's as well, deal with using short interest as information when going LONG. Neither deal with it as a philosophical or moral issue, any more than they would view the weather as such.—Preceding unsigned comment added by 69.106.221.77 (talk • contribs)

So? By all means go ahead and fix it. JohnnyB256 (talk) 20:56, 16 March 2009 (UTC) (sock of User:Mantanmoreland Enric Naval (talk) 22:50, 6 February 2010 (UTC))

Unclear

The article does not explain how it legally possible to borrow shares and then sell them. You can't normally sell something you don't own. A "sale" is a transaction whereby ownership of property is transferred from one person to another. In this case, if the shares are "lent", then they must remain the property of the lender. How then can they be sold by the borrower? Please explain this in the article. Intelligent Mr Toad (talk) 12:39, 7 April 2009 (UTC)

This has now been explained to me. The problem in the article is the use of the word "lend." If A owns shares, and he lends them to B, and B sells them to C, who legally owns the shares? If A still owns them, then C cannot have legally bought them. If C owns them, then A has not “lent” them, he has given them away. That logic cannot be broken. So clearly in short selling either the “loan” or the “sale” is being inaccurately described. It seems that the answer is that C owns the shares. That means that A has not “lent” the shares to B, he has given them to B, with a contractual agreement that B will give A the same number of shares at some time in the future. Thus B acquires the legal right to sell them to C. What binds A to the shares is his contract with B, not a legal title to the shares. This is what needs to be set out in the article, and the word "lent" needs to be either removed or qualified. Intelligent Mr Toad (talk) 12:58, 7 April 2009 (UTC)

It rests on the concept of "fungibility" - things being interchangeable for identical things. If I lend someone my bike, that means that I expect the same bike to be returned. However, if I lend someone £10, it does not need to be the same £10 that is returned. That is because money is fungible, whereas bikes are not (or at least not in that context). Shares are fungible, like money, so when shares are lent it is not necessary to return exactly the same shares - B can buy different shares from someone else and return those instead. I think the word "lend" is therefore correct, because it is used in exactly the same was as if money was lent by A to B - as you describe it above, in terms of a contractual obligation rather than legal title. Art Markham (talk) 14:00, 8 April 2009 (UTC)

It does not appear that Mr Toad is confused on fungibility, rather he has stumbled on the central weakness of the entire shorting concept - that despite fine print saying otherwise, there are effectively two owners of the same shares, both owners are part of the universe of people interested in a positive future of the company. This central fact is hidden, distorted, manipulated away by those interested in maintaining the short selling is good fiction. This is the crux of the entire matter and most importantly, is the subject of this section, namely what the critics say about shorting. Legal ledgermain hides but does not erase this truth. Several solutions are possible: labeling A as 'ghost owner, informal owner, silent owner, shadow owner' or some other term to indicate that A has lost voting rights. He has not lost interest in the company, he has not become a non owner, nor will the company's destruction by shorts be in his interest. The other point to note in the lending is the surreptitious manner of its implementation and the ineffective accounting of the lending/ shorting in many instances. While you might suppose A lent his shares willingly, this is only the case once fine print is again taken into account. A is likely not the ultimate owner of the shares, only the manager (pension, mutual fund or broker) and while it is in the fine print that the shares can be borrowed, it is largely unknown outside the financial industry and rarely if ever explained to clients/ beneficiaries. Canbyte (talk) 02:20, 4 June 2009 (UTC)

It just isn't correct to say that A remains the owner. A has given up his interest in the company, and only has the benefit of a contractual right to get similar shares back, which is not an interest in the company. There are simply not two owners of the shares. And while the owner of the shares may not be the one lending (as it will be a broker that lends, and the shares may be owned by a fund, for example, that keeps them with the broker), the fund that owns the shares will know that they can be lent, and if they forbid the broker from lending they would only end up paying higher fees. Please also note that investors in the Funds are not the ultimate owners of the shares - unitholders in funds have no ownership rights over the assets of the fund, and never have had. They just own part of the fund. And finally, what you call "fine print" is really the contract between the investor and the fund, and if an investor can't be bothered to read it before investing thousands of dollars of their hard earned cash then it's hard to be sympathetic. 212.123.234.85 (talk) 08:50, 7 July 2009 (UTC)

Investors are cautioned to read the preceding paragraph carefully as a fine example of how the public is being misled by legalisms. To deny that the lender has no interest is to rely on the legal definition of the word interest. What about cerebral interest, emotional interest, financial interest, etc.? Try telling your legalism to an angry mob wondering where their savings went. Perhaps the writer will be a bit more sympathetic once public trust is completely eroded and their savings are no longer available to investors or shorters, impoverishing the entire system. —Preceding unsigned comment added by Canbyte (talk • contribs) 03:15, 17 July 2009 (UTC)

Well, they've been short selling for decades and none of that has happened yet, so I won't be holding my breath. In the meantime, the article should remain accurate. What you call "legalisms" are the legal rights attaching to the securities - and securities are, at heart, just legal rights. Westmorlandia (talk) 15:54, 3 August 2009 (UTC)

Introduction

A few points regarding the introduction.

1. Thinking further about Intelligent Mr Toad's comment just above, I don't think the intro is quite correct. It currently says that "In finance, short selling or "shorting" is the practice of selling a financial instrument that the seller does not own at the time of the sale." However, the seller does own the financial instrument, as he has both legal and equitable title to it. As stated above, he also has a contractual obligation to return it.

2. The introduction says that "Thus, being "long" is just a way of saying that you own a positive number of the securities; being "short" is just a way of saying that you own a negative number of the securities." I think this is unduly confusing for a general reader. It is a way of thinking about in mathematical terms, but it is not common sense or legally correct, so I think it would be better to leave it out.

3. "Going short" can equally refer to equivalent derivative contracts as well as actual short selling, which isn't currently mentioned in the introduction.

I therefore suggest the following, which is also much shorter. If no one objects or comments, I'll change the introduction next time I visit:

"In finance, short selling (also known as shorting or going short) is the practice of selling securities that have been borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller will profit from any decline in the value of security, as he will have paid less to repurchase the assets than he received on selling them. Shorting and going short also refer to entering into derivative contracts with an equivalent economic effect.

Going short can be contrasted with the more conventional practice of "going long", where an investor purchases an asset in the expectation that its price will rise." —Preceding unsigned comment added by Westmorlandia (talk • contribs) 15:13, 15 May 2009 (UTC)

Amended. Westmorlandia (talk) 12:52, 16 June 2009 (UTC)

Views of Short Selling

Formerly called the 'Criticism' section.

There's been some edit warring back and forth among IPs and a single-purpose account over a "criticism" section that consists in large measure of an unsourced polemic, with a few sourced comments from Warren Buffett and one or two others thrown in. I changed to "Views of short selling" but would not object at all to removal of this section completely and incorporation of sourced text to other sections. Or, alternatively, the section can be expanded with sourced text. --JohnnyB256 (talk) 17:21, 17 July 2009 (UTC) (sock of User:Mantanmoreland Enric Naval (talk) 22:50, 6 February 2010 (UTC))

JohnnyB, where should a polemic be if not in a section called Criticism? Readers, in your effort to uncover the truth about shorting, you should be aware that the financial industry reaps vast commissions generated by shorting strategies, in addition to direct profits. The industry supports individual academics and entire business schools. Therefore it should be expected that any argument in favor of shorting will be well referenced while issues raised by "polemics" will have few or none. Rather than engaging in a war, I would encourage you to read the original Criticism section by going to the history tab and looking at versions of this article from mid to late June 2009. Revisions later in July try to water down any critique of shorting. I also question why the title of the section was changed if not to discourage hurried learners from finding out about the downside of shorting (not to be confused with risks). Judge for yourself. Canbyte (talk) 19:39, 2 August 2009 (UTC)

Yes, the lack of good references for criticism about short selling is some kind of conspiracy - perhaps the Illuminati are involved? ;-) But seriously, Wiki has policies regarding verifiability for good reason. There are plenty of reputable articles critical of short selling if you would like to reference those. Westmorlandia (talk) 15:29, 3 August 2009 (UTC)

There has been a lot of criticism of short selling, and there surely has got to be better sourcing and more notable criticism than some of what has been added to the article recently. --JohnnyB256 (talk) 15:26, 9 August 2009 (UTC) (sock of User:Mantanmoreland Enric Naval (talk) 22:50, 6 February 2010 (UTC))

I've added some text to the "Views" section on controversial short seller Manuel Asensio and Anthony Elgindy, and subbed a Forbes article on Asensio for the press release previously utilized. That press release was from somebody suing Asensio and was 11 years old. I don't think a press release from one of the parties is a proper source for litigation, and the Forbes article was a detailed account of the Asensio controversy. For balance I added a sentence on Chanos and Enron. --JohnnyB256 (talk) 16:47, 9 August 2009 (UTC)

Limited interest and transfer of title

This article covers the transaction from financial view point using its own jargon like "lending" and "Borrowing" and "Selling which is not owned". It fails to mention what all important clauses govern the lending agreement between the Lender and the short seller. In law, one cannot transfer better title than what one owns. If the short seller has really borrowed the shares and then sold them to the buyer, the buyer gets only limited interest of the borrower. He will not be absolute owner/beneficial owner (fungible shares)of these shares. In practice, various methods are followed in various countries to acquire title to the shares first before they are sold. One way is the Borrower (short seller) first enters into an agreement with the lender for lender fee that in case the seller agrees to sell any shares the lender shall commit his shares and upon his directions deliver them (do all necessary to transfer title in shares to the buyer)to the buyer.In this case, the legal seller is the lender and not the borrowe. However, the lender does not receive the price of the shares. It is received by the short seller. The seller will also promise to the lender to buy and return the equvivalent shares to the lender within agreed time or when called upon the by the lender. If he fails to to buy and return the shares he will have to forfeit any security amount given to the lender. in any case, lender may seek all legal releifs against the short seller for return of the shares when time arrives.

Another model is where the short seller agrees with the Lender that lender will have to transfer all his title in particular qty of shares whenever he (shot seller) receives any purchase order to the short seller but only against lending fee and not he actual market price of the shares. In return, the short seller promises the lender to purchase return of equivalent shares to the lender whenever called upon by the lender. In all these cases, the short seller is not returning loaned shares but rather transferring title to them for almost no cost. This is because legally a borrowe cannot transfer absolute title in the product to be sold unless he owns it or atleast acting as an agent of the Lender who owns those shares. ... 124.124.230.149 (talk) 09:57, 1 August 2009 (UTC)

If you can find some reliable sourcing on the above issues I'd love to see it. --JohnnyB256 (talk) 15:28, 9 August 2009 (UTC) (sock of User:Mantanmoreland Enric Naval (talk) 22:50, 6 February 2010 (UTC))

Me too, though sourcing these finance articles can be difficult - often people end up resorting to newspaper articles, but, to be brutally honest, journalists usually don't have any idea how it actually works either. Westmorlandia (talk) 09:08, 3 September 2009 (UTC)

You are quite correct. Most of the mainstream commentary is utter nonsense. Thank you for your recent correct improvements to the article. Beganlocal (talk) 10:43, 3 September 2009 (UTC)

Short squeezes

There have been some reversions over this phrase:

"A short squeeze is deliberately induced."

I would suggest that a short squeeze can in theory be deliberately induced, but it is not correct to say that all short squeezes are deliberately induced, and I would be surprised if there was even any evidence that a significant proportion are deliberately induced. It should say, at most, "A short squeeze can be deliberately induced."

I am not sure whether the objection is (a) that the phrase "short squeeze" only refers to deliberately induced manifestations of the effect (which is not how I understand it, but I am prepared to concede to weight of numbers), or (b) that the effect can or does only occur when deliberately induced, which I believe to be simply incorrect - the rise in prices triggering a squeeze will usually be a result of market forces of one sort or another, usually outside anyone's control, wrong-footing the short sellers.

As a general straw poll, what are anyone else's feelings on this point? Westmorlandia (talk) 13:57, 4 September 2009 (UTC)

Good catch. Short squeezes are not always deliberately induced. I'm sure there are sources on this aside from Investopedia[6], which is not always reliable but has a good definition (supply vs. demand). --JohnnyB256 (talk) 15:08, 4 September 2009 (UTC) (sock of User:Mantanmoreland Enric Naval (talk) 22:50, 6 February 2010 (UTC))

Hello all. I'll continue the discussion here for continuity. I have two points to advance - one which will happily stand alone in the use of language and the other, which while I know is the absolute truth is unlikely to find public traction simply because the public are misdirected into believing that this cannot be the case.

My first point concerns the term "short squeeze" and the accompanying text. I would submit that the term short squeeze does not simply refer to any situation where prices advance to the discomfort of those who have shorted. On the contrary, it refers to a situation where the majority of the demand for an instrument comes from short covering as a large percentage of the open interest is short the market.

In the paragraph surrounding the contentious edit:

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.

This type of short squeeze only occurs when there are significant vulnerable shorts and the whole intent is to cause these sellers to cover their positions at a loss. Mention is made to large investors intentionally marking up the price to cause pain to the shorts. This is the "commonly understood" version of the term - that there is an intent, a deliberate action, to squeeze out the shorts. As mention is made to large institutional investors buying shares in the anticipation of short covering, this is the type which is deliberately induced.

I am concerned that this type of short squeeze, usually deliberately induced, is incorrectly commingled with any situation where prices advance to the detriment of the short interest. This is not a "squeeze" in the traditional sense. I refer in general to past commodity market corners which have caused squeezing of the short interest, etc.

My second point: while this is correct, it is unlikely to be fully understood and accepted by the public for reasons which may become obvious to the reader who applies critical thought, in contradistinction to the majority. I refer to Westmorlandia:

(b) that the effect can or does only occur when deliberately induced, which I believe to be simply incorrect - the rise in prices triggering a squeeze will usually be a result of market forces of one sort or another, usually outside anyone's control, wrong-footing the short sellers.

and

Short squeezes can occur wherever there are short positions in a stock, and the price rises sharply - for any reason whatsoever - contrary to the expectations of the short sellers. It is the nature of a short position that to exit it, one must buy the stock. As the short sellers all seek to buy the stock to cut their losses, the price rises further - the "short squeeze". No intent on anyone's part is required for this to occur, just the initial sharp rise in price, which may be caused by a macroeconomic event or other uncontrollable factor.

The stock does not rise "for any reason whatsoever". The stock rises because those who understand the market forces applicable to the instrument have been quietly accumulating all the supply, and when this is done the price is permitted to rise in such a way that demand is created in the form of the herd covering their short positions. You say no intent is required for the short covering, just the initial rise in price. My point is that for the initial rise in price to occur, professional accumulation and mark up must occur first; this is the intent I refer to. You cannot complain I do not tell you everything.

Finally, the movement of financial instruments is not outside of anyones control. It is very much within the control of those institutions, central banks, and large investors who deal enough size to essentially dictate the "market price" of an instrument. This is the case in all markets, without exception. The price is not controlled for the benefit of the public, and therefore it must be done in such a way to confuse and misdirect the public as to the reality of the markets.

In summary, a short squeeze (of any sort) is always initiated by professional accumulation with the intent of selling what they accumulate at lower prices to those who are forced to buy at higher prices, always and without exception. This can be demonstrated almost every day, however it will only be understood by the select group who have chosen to push their own envelope in contradistinction to the absolute majority. It is not my fault if people do not understand. Beganlocal (talk) 15:47, 4 September 2009 (UTC)

Began, I'm sorry but you're just not correct. The term "squeeze" does have a pejorative sound to it, and implies deliberate intent. But as you can see from the Investopedia definition that I supplied, it is sometimes taking place without intent to harm shorts. Can you site sources for your interpretation of the phrase? --JohnnyB256 (talk) 15:51, 4 September 2009 (UTC) (sock of User:Mantanmoreland Enric Naval (talk) 22:50, 6 February 2010 (UTC))

Sir, I can see that your contributions are well intentioned and that you are an editor in good standing. However, I can tell from your comments above that you are not an expert in these matters, and by this I mean that you do not understand exactly what causes markets to move in the way we are describing, and do not have the ability to consistently forecast the future progression of price. I cannot cite sources for my interpretation, which is the correct interpretation, because the information is not in the public domain. What is in the public domain is incorrect and likely to misdirect. Again, the reason for this will become apparent to the thoughtful reader.

I am attempting to impart the correct information as I do not believe in misdirection and dumbing down. The mainstream view is not the correct view. I expect some resistance to this as the public are prisoner to the mindset imposed on them, and few are able to "think outside the box".

Do you consider that at least some short squeezes are deliberately induced? If so, what does that suggest to you? That some market participants have the ability to control price to their benefit. That is the logical conclusion which follows after admitting that some squeezes are intentional. You will then see that the principle makes sense, and apply it more generally. You may then consider that the other squeezes do not occur by accident, but are the result of decisions made with a particular intent.

If some squeezes can be deliberately induced, does that not admit of almost all squeezes being operated in this way? Beganlocal (talk) 16:04, 4 September 2009 (UTC)

I forgot to add. I note the general principles of wikipedia and the references by other editors to determining what is the majority popular opinion. I am sorry to have to tell you that in the financial markets the majority popular opinion is nearly always wrong. This is why the public cannot consistently benefit from the market. The market does not exist for the benefit of the public. Logically, nothing in the market happens by accident, it is all a result of decisions. These decisions are not made for collective benefit, but to profit at the expense of the uninformed. This is the cruel reality. Do you see now why it is irrelevant whether the public believe the correct explanation of short squeezes? The public must largely be kept in ignorance so that the absolute minority can profit at their expense. In reality, nearly all the outcomes are decided in advance of the event. I hope and expect that you all find this explanation useful, to your benefit and my satisfaction. Beganlocal (talk) 15:52, 4 September 2009 (UTC)

No, it's not majority popular opinion. It comes down to sources. If a majority of editors argue for a position unsupported by sources it can get dicey, but that's not what's happening in this instance as you haven't cited sources. Again, I ask that you cite sources for your suggested revisions. If you can supply them, and they outweigh what I provided from Investopedia, then I for one would most definitely rethink my position. I don't put much faith in Investopedia, but I think that in this instance it provides a reasonable definition. When I have a chance I'll glance through Google Books and other online references to see what turns up. --JohnnyB256 (talk) 15:58, 4 September 2009 (UTC) (sock of User:Mantanmoreland Enric Naval (talk) 22:50, 6 February 2010 (UTC))

How about we make this easier by referring to my argument #1 instead of the unsourced argument #2. The first argument was simply that this was in the paragraph which discussed the need for shorts to be aware of the possibility of a deliberate short squeeze by larger market participants. In which case it appears clear that the short squeeze we are referring to is indeed deliberately induced. I note that there are no sources currently in the article which attribute short squeezing to large investors, but it is mentioned in the article nonetheless. Beganlocal (talk) 16:07, 4 September 2009 (UTC)

I approve of your diligence in looking for sources, however I will save you the time. The correct interpretation is not in the public domain. You will understand why this is necessary. The correct interpretation of the markets is in the hands of the absolute minority, who will not publish the information as it is contrary to their personal interests. Beganlocal (talk) 16:14, 4 September 2009 (UTC)

Nonsense. Short squeezes have been going on for years. There have to be numerous sources. This isn't some deep, dark, esoteric corner of the securities biz. Began, I'm actually sympathetic to your point of view in this and other articles. But you have to play by the rules here.--JohnnyB256 (talk) 17:11, 4 September 2009 (UTC) (sock of User:Mantanmoreland Enric Naval (talk) 22:50, 6 February 2010 (UTC))

Just at random from Google News, here is an article mentioning a short squeeze in two stocks because of a reverse merger.[7] I doubt very much that these two reverse mergers were carried out with a market manipulative intent. AIG and the other company had other, more pressing things on their mind. We have to be careful when talking about intent. --JohnnyB256 (talk) 12:00, 5 September 2009 (UTC) (sock of User:Mantanmoreland Enric Naval (talk) 22:50, 6 February 2010 (UTC))

Beganlocal, on your first point, I will say that I agree that a short squeeze "does not simply refer to any situation where prices advance to the discomfort of those who have shorted". I believe it refers specifically to the positive feedback effect whereby an increase in prices causes short sellers to purchase the stock, thereby pushing prices still higher. So, while you object to the "commingling" of the concepts of (i) deliberate squeezes and (ii) simple adverse price movements, that was never the issue. The issue is whether short squeezes are always deliberately induced or not.

On your second point, the problem is that not only is your view unsupported by any evidence, it isn't even very logical. To cut to the chase, I think your point rests on the answer to your question that "If some squeezes can be deliberately induced, does that not admit of almost all squeezes being operated in this way?" The answer to the question is "no". The existence of murder does not suggest that all deaths are murder; the existence of doping does not suggest that all athletes are drugged. I don't doubt for a moment that more short squeezes are deliberately induced than we are aware of, but conspiracy-theory logic won't get us to the right answer in this case, I'm afraid. Westmorlandia (talk) 13:31, 21 September 2009 (UTC)

Deletion of wording re views of short selling

I deleted this wording: "Further views (mostly negative) are to be found under the history tab at the top of the page." It seems blindingly obvious that either the information belongs on the page or it doesn't. If it has been deleted from the article then it shouldn't be referenced. If the editor feels it should be in the article, he should say so and justify it. Westmorlandia (talk) 19:38, 20 October 2009 (UTC)

Comment inappropriate placed inline

"In the US, initial public offering s (IPOs) cannot be sold short for a month after they start trading." THIS STATEMENT IS NOT CORRECT!!! THE IPO's UNDERWRITER IS NOT ALLOWED TO LEND STOCK FOR THE PURPOSE OF SHORTING FOR THE FIRST 30 DAYS OF THE IPO's TRADING PERIOD. WHOEVER BOUGHT THE SHARES FROM THE UNDERWRITER CAN LEND HIS SHARES FOR SHORTING PURPOSES IMMEDIATELY. THE 30 DAY RULE ONLY APPLIES TO THE UNDERWRITER. BETTER RESEARCH IS NEEDED BY WHOEVER WROTE THIS ARTICLE.

(Piano non troppo (talk) 10:00, 5 December 2009 (UTC))

Mechanism

I read : "Generally, the short seller does not earn interest on the short proceeds and cannot use or encumber the proceeds for another transaction". I do not understand this statement and suspect it obliquely refers to US regulatory rules, and more specifically apply to retail investors. Please explain and give legal or regulatory references.Bmathis (talk) 19:08, 1 February 2011 (UTC)

Valuations

Can some one through more light on Valuation of such short sale bonds —Preceding unsigned comment added by 64.86.141.133 (talk) 11:13, 2 March 2011 (UTC)

Mechanism: is it borrow, sell, buy, return. or sell borrow...

in the top of the section called Mechanism it says: "Upon completion of the sale, the investor has 3 days (in the US) to borrow the shares." I am confused by this. Borrow the shares from the broker? But I thought he had already done that in order to have them sold! At the top the procedure is given as borrow, sell, buy, return. Here it seems to start with sell and then borrow? Please clarify. Asllearner (talk) 22:28, 9 August 2011 (UTC)

96.33.66.125 (talk)Anytime you sell (or purchase) most stocks in the US, the delivery of the shares (settlement) takes place 3 days after the transaction. Even if you were selling shares you own, they do not have to be delivered until the 3rd day after the transaction.

Views of short selling (again)

The section "Views of short selling" seems to be only explaining a single view. I.e., in favour of short selling. There are varying opinions out there about the practice, and I came to this article hoping to have those opinions summarized and explained to me. Unfortunately, all I found was the pro-shorting viewpoint. The anti- viewpoint is not explained at all, and a brief passing mention of the existence of anti- viewpoint is immediately dismissed with more pro- arguments. If the section is not going to explain both viewpoints, then perhaps it does not belong in the article? Or at least, should be re-titled to "Arguments in favour of shorting" or something similar? (I don't have an opinion on the practice; I'm not an expert in the subject. That's why I wanted to read about the varying opinions in the first place!) --50.99.8.69 (talk) 09:13, 13 September 2011 (UTC)

Unsubstantiated Claims

I find this article has a lot of people against short-selling (cited) with no factual evidence of the claims. It supports the view of a politician or non-market participant, that doesn't understand the mechanics of short sellers, but yet appears to want to blame their losses on short-sellers. I bet you if you asked these people if they actually engage in short-selling, they would probably say not a clue. This 'witch-hunt' behavior often occurs is slow economic times or periods after corrections (2008). This has happened all throughout history. We need to make sure that this isn't a forum for outsiders to use as a podium, spreading false rumours and accusations on Bears. The reality is, any hampering or discouraging of short-selling is going to cause an epic collapse in society so large, that even the bulls won't have anything left to re-initiate longs.Danceking5 (talk) 08:08, 16 March 2012 (UTC)

The 'novice' I am also wrote the case against restrictions as well as the most part of this version of the article, and your objection is misguided, because the paragraph you dislike is not about the drawbacks of short-selling, but on the social perceptions of what they are. Indeed, you must have been irritated since 2008 by the many comments in the media that made short-sellers the scapegoat of the financial crisis. I interpret the flurry of 'citation needed' you inserted in that paragraph as a mark of this irritation ; I humbly think most of them are irrelevant and that the article is reasonably balanced and referenced. Regards. Bmathis (talk) 20:36, 18 March 2012 (UTC)

Quotation of terms.

Can someone explain why terms are quoted using a combination of characters? An example would be these sentances:

Financial markets apply the term of « forward » sales to derivative products, "futures" and options, but that of “short” or “uncovered” sales when negotiation takes place on a stock exchange. However the terms « shorting » and « going short », as opposed to « going long », apply to both futures markets and stock exchanges.

Mike _talk 13:21, 25 March 2012 (UTC)

Major Re-write Needed.

This article is written as if all "shorting" were short selling of shares of stock that are duly borrowed and delivered at the time of the short sale. It therefore does not cover shorting of futures, options, swaps, currencies, and even physical assets for forward delivery. I started to work on the first paragraph, but in my opinion the entire article is replete with error, misleading and incomplete, and needs a thorough and patient re-working by knowledgeable editors. — Preceding unsigned comment added by SPECIFICO (talk • contribs) 23:23, 3 September 2012 (UTC)

The diagram is hideous. There are lines and arrows and different weights for fonts, but time, wealth and value have no readily apparent depictions in the 2D abstraction... It has no intuitive grace. — Preceding unsigned comment added by 71.165.222.85 (talk) 08:16, 15 October 2013 (UTC)

Suggestions to improve this article

Hi, I'd like to suggest some changes to this article to improve its content and make it more readable. As a result of the merge between the Short selling and Short (finance) articles there is now a lot of duplicative and repetitive information in this article. The goal of my engagement here it to help make the article more factually correct by correcting misleading passages. The changes I propose are on behalf of the Managed Funds Association, who are also providing guidance on research and writing. Due to my link to the MFA, I'd prefer to not make any edits to this article myself, and instead seek consensus with other editors here to review the following suggestions and implement them if reasonable.

To start with, I'd like to focus on the lead and Concept section.

Lead

I propose the following wording in green (with citations) be added to the lead to explain why short selling is often used as part of a larger investment strategy, especially by hedge funds:

In finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to that third party. The basic principle followed is that selling something high now, to buy lower later, is profitable. The short seller (speculator) 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 the loss that can be incurred by a short seller is only limited by the total strike price. Other costs of shorting may include a fee for borrowing the assets and payment of any dividends paid on the borrowed assets. Short selling is commonly used as an investment strategy by hedge funds to balance other investment positions. By hedging a long position with a short position in financial instruments whose value derives from similar variables, portfolio managers can decrease the total risk of investment. "Shorting" and "going short" also refer to entering into any derivative 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.

References

Concept

I think the Concept section would benefit from a partial rewording. The introduction already establishes that short selling is also referred to as "shorting" or "going short", and that taking short positions allows an investor to profit from the decline in price of a particular asset. I think we can remove the duplicative first two sentences of the fourth paragraph:

The terms shorting and going short are also used as blanket terms for tactics that allow a speculator to gain from the decline in price of a security. Such tactics are generally based on a derivative contract, such as an option, a future or a similar synthetic position.

I'd like to propose these sentences be replaced with the following:

Many investors take short positions in futures contracts through derivative contracts, such as an option, a future or a similar synthetic position.

References

If these changes seem neutral and acceptable to other editors, I hope you will make them. I have this page watchlisted so please feel free to reply here with any questions. Cheers, WWB Too (Talk · COI) 19:50, 5 September 2012 (UTC)

--I did a little work on the first section, as you will see. Your proposed revision is better but I would prefer "Traders sometimes take short..." The article has confusion between assets and non-asset instruments and it's compounded by ambiguity about traders vs. investors and speculators vs. hedgers and implicitly by a single-position model vs. a portfolio model of investment/risk.SPECIFICO 00:18, 14 September 2012 (UTC) — Preceding unsigned comment added by SPECIFICO (talk • contribs)

Hi SPECIFICO, thanks for your reply. I've been looking at your changes to the lead and am running them past someone more versed in finance than I, then I might have some thoughts. Meanwhile, do you have any feedback on my proposed changes to the lead? Also, if the change to Concept looks ok to you, with the wording change you suggest, would you mind going ahead and making that edit? Cheers, WWB Too (Talk · COI) 20:42, 18 September 2012 (UTC)

I think the lead, as written, looks good. Except, perhaps, toward the end where it would be better to list the various motivations for short selling (hedging, arbitrage, speculative, quant models) equally. --regentspark (comment) 20:48, 18 September 2012 (UTC)

I don't like the "quant models" mention in this section. "Quant models" is a technique that can be used in any of the applications, hedging, arbitrage, speculation, etc. or any of those can be done without using "quant models."'''SPECIFICO''' (talk) 20:13, 21 September 2012 (UTC)

No worries. We just need to make it clear that there are many reasons to go short, not just for speculative gain on the fall in price of a single asset. --regentspark (comment) 20:26, 21 September 2012 (UTC)

Hello again SPECIFICO and regentspark, sorry it's taken awhile for me to get back to you both here. I've been looking at both of your changes to the lead and they look good to me.

If neither of you have any objections, would one of you be willing to make the change to the Concept section that I've outlined above? Cheers, WWB Too (Talk · COI) 23:00, 27 September 2012 (UTC)

Hwllo WWB. I didn't get what you were getting at with the proposed addition to the concept section. Among other issues, a future IS a derivative, and a "synthetic" is not a specific instrument.'''SPECIFICO''' (talk) 22:32, 2 October 2012 (UTC)

Apologies for the ambiguity of the proposed wording, SPECIFICO. I've looked into this a bit further and would like to propose the following as a replacement for the text indicated above:

Short selling refers broadly to any transaction used by an investor to profit from the decline in price of an asset or financial instrument. However a short position in a derivatives contract is not technically a short sale, because the underlying asset is not actually delivered upon the initiation of the position. Derivative contracts include options, futures, and swaps.

References

I think this should remove the confusion around derivatives and also provides an explanation of the distinction between short selling and taking a short position, which is currently missing from this section. If this wording is clear enough, would you be able to add it to the article? Cheers, WWB Too (Talk · COI) 13:56, 5 October 2012 (UTC)

I'm OK with SPECIFICO's minor rewrite based on what I had proposed on 10/5; the language in green immediately above now has consensus of at least us two. However, I would strongly prefer not to be the one to edit directly; Jimbo has expressed disapproval of company representatives editing directly, so I mean to follow that advice. For another editor's convenience, here is the markup in <nowiki></nowiki> format:

Markup

Short selling refers broadly to any transaction used by an investor to profit from the decline in price of an asset or financial instrument. However a short position in a [[Derivative_(finance) | derivatives]] contract is not technically a short sale, because the underlying asset is not actually delivered upon the initiation of the position. Derivative contracts include [[Option (finance)|options]], [[Future (finance)|futures]], and [[Swap (finance)|swaps]].<ref name=Harris>{{cite web |url=http://books.google.com/books?id=Rd9hDRR1Yx4C&pg=PA41&lpg=PA41&dq=derivative+contract&source=bl&ots=XbwJdAMTNJ&sig=LdZdsWgAEmcOXjXuEofAV-EvZrw&hl=en&sa=X&ei=0HI2UKDXO-fLyQHn6YHIAw&ved=0CFYQ6AEwBw#v=onepage&q=derivative%20contract&f=false |author=Larry Harris |title=Trading and Exchange: Market Microstructure for Practitioners |year=2002 |publisher=Oxford University Press |isbn=0195144708 |page=41}}</ref><ref name=Chance>{{cite web |url=http://books.google.com/books?id=DT0nnLDMYTgC&pg=PA6&lpg=PA6&dq=Short+selling+derivative+contract&source=bl&ots=g51ElVZ3Ak&sig=Q1JWFuCFrYiVPkI0uQW6pTfkwjc&hl=en&sa=X&ei=smxsUJxuir6KAt6UgJgG&ved=0CDIQ6AEwAA#v=onepage&q=Short%20selling%20derivative%20contract&f=false |authors=Don M. Chance and Robert Brooks |title=An Introduction to Derivatives and Risk Management |publisher=South-Western College |isbn=0324601204 |page=6}}</ref>

SPECIFICO, if you're willing to make the move, I'd appreciate it. If you're not available, I can also look for additional help. Cheers, WWB Too (Talk · COI) 16:41, 8 October 2012 (UTC)

DONE'''SPECIFICO''' (talk) 17:46, 8 October 2012 (UTC)

Looks good, thanks! WWB Too (Talk · COI) 19:19, 8 October 2012 (UTC)

I wonder whether this article is trying to cover too broad a subject. It seems as if every statement needs to branch into a lot of detail, contingencies, and exceptions that would clutter and greatly expand a simple explanation of shorting. I don't know the answer but I can see many pitfalls between now and a good article.'''SPECIFICO''' (talk) 20:52, 8 October 2012 (UTC)

Interesting point. It is a very big subject, all right. Going by Wikipedia's guideline on article size, at 54Kb it is long enough that it "may need to be divided". I don't think the problem with the article is necessarily length, but clarity, yet both could be addressed by employing summary style and giving some topics their own articles. Then this article could be more of a summary of the various sub-topics, rather than every last detail or contingency needing to be here. That said, the additional suggestions I'm working on are going to be mostly along the lines of adding + revising material in the history and regulations sections which I think would be worthwhile. Whether they're eventually moved to another page is an issue perhaps to consider later. WWB Too (Talk · COI) 21:10, 8 October 2012 (UTC)

Suggested reorganization

There are currently three sections in the article which include details regarding short selling restrictions and regulations: History, Mechanism and The regulatory response. It seems to me this is needlessly duplicative and arguably confusing, so I'd like to suggest that detailed information about relevant laws and regulations from these various sections be moved into the most appropriate section, which is currently titled The regulatory response, while the other sections replaced with updated wording summarizing key details. I acknowledge this may seem a bit complicated, but I'm afraid the two requests can't really be separated.

For the History section, I propose that two of the subsections, Naked short selling restrictions and Naked short selling restrictions in European economic crisis, be consolidated to a single heading and replaced with the following text—this provides a general overview of short selling regulations implemented in the wake of the 2008 financial crisis, but leaves specific details for the Regulatory response section:

Proposed History replacement language

During the 2008 financial crisis, critics argued that investors taking large short positions in struggling financial firms like Lehman Brothers, HBOS and Morgan Stanley created instability in the stock market and placed additional downward pressure on prices. In response, a number countries introduced restrictive regulations on short-selling in 2008 and 2009. Investors argued that it was it the weakness of financial institutions, not short-selling, that drove stocks to fall. In September 2008, the Securities Exchange Commission in the United States abruptly banned short sales, primarily in financial stocks, to protect companies under siege in the stock market. That ban expired several weeks later as regulators determined the ban was not stabilizing the price of stocks. Temporary short-selling bans were also introduced in the UK, Germany, France, Italy and other European countries in 2008 to minimal effect. Australia moved to ban naked short selling entirely in September 2008. Germany placed a temporary ban on naked short selling of certain euro zone securities in 2010. Spain and Italy introduced short selling bans in 2011 and again in 2012. Worldwide, economic regulators seem inclined to to restrict short selling to decrease potential downward price cascades. Investors continue to argue this only contributes to market inefficiency. References

For convenience, I've included markup for the above in the hidden box below:

Proposed History markup

During the [[2008 financial crisis]], critics argued that investors taking large short positions in struggling financial firms like [[Lehman Brothers]], [[HBOS]] and [[Morgan Stanley]] created instability in the stock market and placed additional downward pressure on prices. In response, a number countries introduced restrictive regulations on short-selling in 2008 and 2009.<ref name=Lavinio>{{cite web |url=http://books.google.com/books?id=h95B-V4l3w0C&pg=PA3&lpg=PA3&dq=synthetic+position+derivative+contracts&source=bl&ots=QdxUhxfKSt&sig=aMH6Bf0H7tZHFieLTbx6SHUzSkc&hl=en&sa=X&ei=w3A2UI-QOOmOygG10oGYBw&ved=0CC8Q6AEwAA#v=onepage&q=synthetic%20position%20derivative%20contracts&f=false |title=The Hedge Fund Handbook: A Definitive Guide for Analyzing and Evaluating Alternative Investments |last=Lavinio |first=Stefano |year=1999 |publisher=McGraw-Hill |pages=442-443 |isbn=0071350306}}</ref><ref name=Madura>{{cite web |url=http://books.google.com/books?id=iIizpVxYjt0C&pg=PA308&lpg=PA308&dq=short+selling+2008&source=bl&ots=t4k_Bx4GJQ&sig=JIQzja7BohOe5s-dW3CfRV1Io6o&hl=en&sa=X&ei=08hQUNrSBon5igLbz4G4DQ&ved=0CC4Q6AEwADgK#v=onepage&q=short%20selling%202008&f=false |title=Financial Markets and Institutions |last=Madura |first=Jeff |year=2009 |publisher=South-Western College Publishing |page=308 |isbn=1439038848}}</ref> Investors argued that it was it the weakness of financial institutions, not short-selling, that drove stocks to fall.<ref name=Story>{{cite web |url=http://www.nytimes.com/2008/10/08/business/08short.html |title=A Debate as a Ban on Short-Selling Ends: Did It Make Any Difference? |last=Harris |first=Larry |year=2002 |work=The New York Times |date=7 October 2008 |accessdate=12 September 2012}}</ref> In September 2008, the Securities Exchange Commission in the United States abruptly banned short sales, primarily in financial stocks, to protect companies under siege in the stock market. That ban expired several weeks later as regulators determined the ban was not stabilizing the price of stocks.<ref name=Story/><ref name=Madura/> Temporary short-selling bans were also introduced in the UK, Germany, France, Italy and other European countries in 2008 to minimal effect.<ref name=Oakley>{{cite web |url=http://www.ft.com/intl/cms/s/0/024f75ee-cca3-11dd-acbd-000077b07658.html |title=Short-selling ban has minimal effect |last=Oakley |first=David |year=2008 |work=Financial Times |date=18 December 2008 |accessdate=12 September 2012}}</ref> Australia moved to ban naked short selling entirely in September 2008.<ref name=Lavinio/> Germany placed a temporary ban on naked short selling of certain euro zone securities in 2010.<ref>{{cite web |url=http://www.bloomberg.com/news/2010-05-18/germany-to-start-temporary-ban-on-naked-short-selling-of-euro-bonds-banks.html |title=Germany to Temporarily Ban Naked Short Selling, Some Swaps of Euro Bonds |last=Crawford |first=Alan |year=2010 |work=Bloomberg |date=18 May 2010 |accessdate=13 September 2012}}</ref> Spain and Italy introduced short selling bans in 2011 and again in 2012.<ref name=Rucinski>{{cite web |url=http://www.reuters.com/article/2012/07/23/us-italy-consob-short-selling-idUSBRE86M0US20120723 |title=Spain, Italy reinstate short-selling ban |authors=Tracy Rucinski and Stephen Jewkes |year=2012 |work=Reuters |date=23 July 2012 |accessdate=12 September 2012}}</ref> Worldwide, economic regulators seem inclined to to restrict short selling to decrease potential downward price cascades. Investors continue to argue this only contributes to market inefficiency.<ref name=Lavinio/>

I'd also like to propose that the The regulatory response section be retitled Regulations and replaced with the following text, which represents a consolidation and reorganization of existing content, with some rewriting for clarity:

Proposed Regulations replacement sections

United States The Securities and Exchange Act of 1934 gave the Securities and Exchange Commission the power to regulate short sales. The first official restriction on short selling came in 1938, when the SEC adopted a rule known as the uptick rule that dictated that a short sale could only be made when the price of a particular stock was higher than the previous trade price. The uptick rule aimed to prevent short sales from causing or exacerbating market price declines. In January 2005, The Securities and Exchange Commission enacted Regulation SHO to target abusive naked short selling. Regulation SHO was the SEC's first update to short selling restrictions since the uptick rule in 1938. The regulation contains two key components: the "locate" and the "close-out." The locate component attempts to reduce failure to deliver securities by requiring a broker possess or have arranged to posses borrowed shares. The close out component requires that a broker be able to deliver the shares that are to be shorted. In the US, initial public offers (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 brokerage firms that specialize in penny stocks (referred to colloquially as bucket shops) have used the lack of short selling during this month to pump and dump thinly traded IPOs. Canada and other countries do allow selling IPOs (including U.S. IPOs) short. The Securities and Exchange Commission initiated a temporary 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. An assessment of the effect of the temporary ban on short-selling in the United States and other countries in the wake of the financial crisis 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. Europe, Australia and China In the UK, the Financial Services Authority 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. Between 19 and 21 September 2008, Australia temporarily banned short selling, and later placed an indefinite ban on naked short selling. Australia's ban on short selling was further extended for another 28 days on 21 October 2008. Also during September 2008, Germany, Ireland, Switzerland and Canada banned short selling leading financial stocks, and France, the Netherlands and Belgium banned naked short selling leading financial stocks. By contrast with the approach taken by other countries, Chinese regulators responded by allowing short selling, along with a package of other market reforms. References

Again for convenience, markup for the above is hidden here:

Proposed Regulations markup

===United States=== The [[Securities and Exchange Act of 1934]] gave the [[Securities and Exchange Commission]] the power to regulate short sales.<ref>{{cite web |url=http://www.sec.gov/about/laws/sea34.pdf |title=Securities Exchange Act of 1934 |year=1934 |publisher=Securities and Exchange Commission}}</ref> The first official restriction on short selling came in 1938, when the SEC adopted a rule known as the [[uptick rule]] that dictated that a short sale could only be made when the price of a particular stock was higher than the previous trade price. The uptick rule aimed to prevent short sales from causing or exacerbating market price declines.<ref name=Lavinio2>{{cite web |url=http://books.google.com/books?id=pGs-GBn8-k0C&pg=PA86&lpg=PA86&dq=Regulation+SHO+1938&source=bl&ots=dS1ba1ZEvS&sig=TyPhrlt9d1yDsfRXFIQvLg64tqA&hl=en&sa=X&ei=IAZSULqhOOXOigL6-oDgDg&ved=0CDYQ6AEwAg#v=onepage&q=Regulation%20SHO%201938&f=false |title=The Hedge Fund Handbook: A Definitive Guide for Analyzing and Evaluating Alternative Investments |last=Lavinio |first=Stefano |year=1999 |publisher=McGraw-Hill |pages=85-95 |isbn=0071350306}}</ref> In January 2005, The Securities and Exchange Commission enacted [[Regulation SHO]] to target abusive naked short selling. Regulation SHO was the SEC's first update to short selling restrictions since the uptick rule in 1938.<ref name=Singh>{{cite web |url=http://books.google.com/books?id=_FUoBlN8p_EC&pg=PA122&lpg=PA122&dq=Regulation+SHO+1938&source=bl&ots=QH2PVWryns&sig=wBWXJlxmerXUrLudc4ahr43KJtU&hl=en&sa=X&ei=LwdSUMHSILSOigLGtYCwDQ&ved=0CEcQ6AEwBA#v=onepage&q=Regulation%20SHO%201938&f=false |title=Bank Regulations |author=S.K. Singh |year=2009 |publisher=Discovery Publishing House |pages=122-123 |isbn=818356447X}}</ref><ref>{{cite web|url=http://www.sec.gov/spotlight/keyregshoissues.htm |title=Division of Market Regulation: Key Points about Regulation SHO|date=April 11, 2005|author=U.S. SEC}}</ref> The regulation contains two key components: the "locate" and the "close-out." The locate component attempts to reduce [[failure to deliver]] securities by requiring a broker possess or have arranged to posses borrowed shares. The close out component requires that a broker be able to deliver the shares that are to be shorted.<ref name=Lavinio2/><ref name=Young>{{cite web |url=http://books.google.com/books?id=TM-_yRzNx3cC&pg=PA178&lpg=PA178&dq=Regulation+SHO+short+sell&source=bl&ots=duvO7A29WJ&sig=3VQvhBtaxiZaoheqoA_HvgUPJQE&hl=en&sa=X&ei=p_1RUMzbDZPRiAK5_oCYDQ&ved=0CFoQ6AEwBw#v=onepage&q=Regulation%20SHO%20short%20sell&f=false |title=The Complete Guide to Selling Stocks Short: Everything You Need to Know Explained Simply |last=Young |first=Matthew G. |year=2010 |publisher=Atlantic Publishing Group Inc. |pages=178-179 |isbn=1601383266}}</ref> In the US, [[initial public offering|initial public offers]] (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 [[brokerage firm]]s that specialize in [[penny stock]]s (referred to colloquially as [[bucket shop (stock market)|bucket shops]]) have used the lack of short selling during this month to [[pump and dump]] thinly traded [[IPO]]s. [[Canada]] and other countries do allow selling IPOs (including U.S. IPOs) short.<ref>{{cite web |url=http://books.google.com/books?id=pQtdJqdpzUoC&pg=PA233&lpg=PA233&dq=initial+public+offering%7Cinitial+public+offers+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.&source=bl&ots=F3q1q_JL9w&sig=0CnLxdemwnSDmETRxhKWn_RBAn8&hl=en&sa=X&ei=Fh5SUPPzLI-VjAK_toCgDg&ved=0CDwQ6AEwAw#v=onepage&q=initial%20public%20offering%7Cinitial%20public%20offers%20IPOs%20cannot%20be%20sold%20short%20for%20a%20month%20after%20they%20start%20trading.%20This%20mechanism%20is%20in%20place%20to%20ensure%20a%20degree%20of%20price%20stability%20during%20a%20company's%20initial%20trading%20period.&f=false |title=Security Analysis with Investment and Portfolio Management |author=Mahipal Singh |publisher=Gyan Books |year=2011 |page=233 |isbn=8182055199}}</ref> The Securities and Exchange Commission initiated a temporary 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.<ref>{{cite news |url=http://www.bloomberg.com/apps/news?pid=20601087&sid=aTHLqfgpnFYw&refer=home |title=Short Sellers under Fire in U.S., U.K. After AIG Fall |date=19 September 20008 |work=Bloomberg |author=Michael Tsang }}</ref> An assessment of the effect of the temporary ban on short-selling in the United States and other countries in the wake of the financial crisis 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.<ref name=Oakley>{{cite web |url=http://www.ft.com/intl/cms/s/0/024f75ee-cca3-11dd-acbd-000077b07658.html |title=Short-selling ban has minimal effect |last=Oakley |first=David |year=2008 |work=Financial Times |date=18 December 2008 |accessdate=12 September 2012}}</ref> ===Europe, Australia and China=== In the UK, the [[Financial Services Authority]] had a moratorium on short selling 29 leading financial stocks, effective from 2300 [[GMT]], 19 September 2008 until 16 January 2009.<ref>{{cite news |url=http://news.bbc.co.uk/1/hi/business/7624012.stm |title=FSA clamps down on short-selling |date=2008-09-18 |author= [[BBC]] |accessdate=2010-01-04 |work=BBC News}}</ref> After the ban was lifted, [[John McFall, Baron McFall of Alcluith|John McFall]], chairman of the Treasury Select Committee, [[House of Commons of the United Kingdom|House of Commons]], made clear in public statements and a letter to the FSA that he believed it ought to be extended. Between 19 and 21 September 2008, [[Australia]] temporarily banned short selling,<ref>{{cite news| url=http://www.theaustralian.com.au/stockbrokers-feeling-the-squeeze/story-fna7dq6e-1111117638688| title=The Australian | date=2008-10-02}}</ref> and later placed an indefinite ban on naked short selling.<ref>{{cite news| url=http://news.smh.com.au/business/asx-ban-on-short-selling-is-indefinite-20081003-4t16.html | work=The Sydney Morning Herald | title=ASX ban on short selling is indefinite | date=2008-10-03}}</ref> Australia's ban on short selling was further extended for another 28 days on 21 October 2008.<ref>{{cite web|url=http://www.asic.gov.au/asic/asic.nsf/byheadline/08-210+ASIC+extends+ban+on+covered+short+selling?openDocument |title=Australian Securities and Investments Commission - 08-210 ASIC extends ban on covered short selling |publisher=Asic.gov.au |date= |accessdate=2012-05-24}}</ref> Also during September 2008, [[Germany]], [[Ireland]], [[Switzerland]] and [[Canada]] banned short selling leading financial stocks,<ref name="NBR_35494">{{cite news |url=http://www.nbr.co.nz/article/australian-short-selling-ban-goes-further-other-bourses-35494 |title=Australian short selling ban goes further than other bourses |author=McDonald, Sarah |date=22 September 2008 |work=[[National Business Review]] |accessdate=9 November 2011}}</ref> and [[France]], the [[Netherlands]] and [[Belgium]] banned naked short selling leading financial stocks.<ref>{{cite news| url=http://www.forbes.com/markets/2008/09/22/briefing-europe-update-markets-equity-cx_vr_0922markets12.html | work=Forbes | first=Vidya | last=Ram | title=Europe Spooked By Revenge Of The Commodities | date=2008-09-22}}</ref> By contrast with the approach taken by other countries, Chinese regulators responded by allowing short selling, along with a package of other market reforms.<ref>{{cite news| url=http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSSHA10179120081005 | work=Reuters | title=UPDATE 2-China to launch stocks margin trade, short sales | date=2008-10-05 | first=Samuel | last=Shen}}</ref>

As before, I wish to avoid making direct edits on account of working on behalf of the MFA on this topic. If these changes seem neutral and acceptable to another editor, I hope they can implement them. If you have any questions, please let me know. Cheers, WWB Too (Talk · COI) 14:51, 10 October 2012 (UTC)

I'm ok with your text replacing the post 2008 part of the history section (with the caveat that short selling was banned in selected securities, not across the board, by the SEC and that should be made clear in the article). --regentspark (comment) 17:49, 16 October 2012 (UTC)

Not a problem. I've updated the first paragraph of History to note the temporary ban was "primarily in financial stocks"; the same issue is already dealt with in more detail in the proposed Regulations section. Let me know if you see anything else to tweak; if you think they're an improvement overall, would you mind adding these updates? WWB Too (Talk · COI) 18:58, 16 October 2012 (UTC)

I've implemented the proposed changes and also split the text into paragraphs, with the split at parts I thought were appropriate. If everything is alright with how I split them, then we should be good. Silverseren^C 23:57, 8 November 2012 (UTC)

Yep, this looks good. Thanks! WWB Too (Talk · COI) 12:33, 9 November 2012 (UTC)

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Someone please edit the intro of this article to fix the 'effects' verbial error into 'affects'

Verb is 'to affect' not 'to effect', as 'effect' is the noun. Thanks 46.193.182.48 (talk) 13:48, 4 November 2018 (UTC)

No. It's correct as is. "Effect" meaning "execute". Look it up. TREKphiler ^{any time you're ready, Uhura} 18:11, 4 November 2018 (UTC)

"On tick"?

There's a term that's unexplained in part of the article:

In contrast to a traditional merchant who sets out to "buy low, sell high", a short-seller sets out to "sell high, buy low", or even to "buy high, sell low" when this buy is in fact "on tick".

It's totally ambiguous as to what the term "on tick" is. The term doesn't show up anywhere else in the article.FA Jon (talk) 08:21, 13 April 2019 (UTC)

Inadequate referencing

The first 5 footnotes in the article are just links to PDFs (which are papers, what seems to be a chapter in a textbook, and other things the name of which I don't know. They're not proper citations. I don't know how to fix them or even if they are proper sources for the claim and I haven't slept in days. They are footnotes to the last sentence in the introduction, where it says "[r]esearch indicates that banning short selling is ineffective and has negative effects on markets." Thank you --Paper wobbling sound (talk) 21:35, 30 January 2021 (UTC)

Securities and Exchange Act of 1934

please change ((Securities and Exchange Act of 1934)) to ((Securities Exchange Act of 1934)) 2601:541:4580:8500:7C52:F223:70D3:8518 (talk) 19:03, 31 March 2022 (UTC)

 Done ScottishFinnishRadish (talk) 19:48, 31 March 2022 (UTC)