Short Selling - Shares lending

[quyen]

Have I missed something but why would people lend short-sellers their shares knowing that the short-sellers will try to cause a drop in their share value?!

[Mr E]

quyen said:

Have I missed something but why would people lend short-sellers their shares knowing that the short-sellers will try to cause a drop in their share value?!

They don't really borrow them.

[funkyol]

Mr E said:

quyen said:

Have I missed something but why would people lend short-sellers their shares knowing that the short-sellers will try to cause a drop in their share value?!

They don't really borrow them.

Hahahah, brilliant. This thread actually belongs in the "Funny things your wife / girlfriend has said..." thread.

[Zod]

The stock lender lends out x shares and gets back x shares. He also gets a fee. The short seller may lose on his short if the share price increases. It's not a given that he will have got it right.

[tomtom]

Ding. The lender will have a different view of the price movement to the shorter.

[VladTheDad]

quyen said:

Have I missed something but why would people lend short-sellers their shares knowing that the short-sellers will try to cause a drop in their share value?!

You can't "cause a drop in share price" (that would be market manipulation - which is very naughty), but you can bet that it will happen. As stated above, not everyone will have the same opinion (if they did the market would not be in equilibrium).

BTW, it's not a dumb question (unless you actually work in financial markets).

Edited by VladTheDad on Wednesday 24th September 15:30

[tvrtim]

But you can,if you are in a position to do so, start a few unpleasant rumours.........

[MaxAndRuby]

I thought that you could sell shares that you don't own all day long, as long as you get your book straight before settlement day.

[quyen]

tomtom said:

Ding. The lender will have a different view of the price movement to the shorter.

I guess this is true most of the time but surely, not when Lehman was going down! At one point, 25% of Lehman shares was out on loan.

[VladTheDad]

tvrtim said:

But you can,if you are in a position to do so, start a few unpleasant rumours.........

If you were caught spreading unfounded rumours in order to manipulate the price of a stock you would get into a lot of trouble.

[HundredthIdiot]

From what I can understand, "destructive" short selling generally only works if there is some fundamental reason the target company is unsound (i.e. massive amount of toxic crap on it's books). The short selling just accelerates the demise.

If the lender believed the stock unsound, he would have sold it already. He hasn't, so he thinks the short seller is wrong. In which case, he has nothing to worry about by lending it.

[Dr Jekyll]

quyen said:

tomtom said:

Ding. The lender will have a different view of the price movement to the shorter.

I guess this is true most of the time but surely, not when Lehman was going down! At one point, 25% of Lehman shares was out on loan.

One major UK retailer has nearly 40% out on loan, and the shares went up today.
Short selling is no different in principle from buying shares in the hope they will rise when obviously the seller thinks they won't.

The short selling ban is based on typical politicians logic:

Something must be done!

This is 'something'.

Therefore we must do it!

[Silver993tt]

Shorting inevitably comes with insider knowledge before the shorting takes place. It's a destructive approach to many companies that are perfectly healthy financially.

Should be outlawed indefinetly

[Dr Jekyll]

Silver993tt said:

Shorting inevitably comes with insider knowledge before the shorting takes place. It's a destructive approach to many companies that are perfectly healthy financially.

Should be outlawed indefinetly

It's based on a judgment on what the price will do, just like any other form of share trading. It's no more likely to be based on inside information than any other trade, and insider trading is outlawed anyway.

[chris_w666]

quyen said:

tomtom said:

Ding. The lender will have a different view of the price movement to the shorter.

I guess this is true most of the time but surely, not when Lehman was going down! At one point, 25% of Lehman shares was out on loan.

Short sellers often borrow shares from investment funds that have a long term position so they are not affected by short term drops.

A lot of short selling based on 'insider knowledge' is done blind meaning no shares are ever borrowed or actually change hands.

Insider trading has always been outlawed but is extremely hard to prove it is going on.

Short sellers are basically gamblers and they can lose big as well as win big.


:donsflameproofcoatincaseanyofthatiswrong:

[Silver993tt]

Dr Jekyll said:

Silver993tt said:

Shorting inevitably comes with insider knowledge before the shorting takes place. It's a destructive approach to many companies that are perfectly healthy financially.

Should be outlawed indefinetly

...... and insider trading is outlawed anyway.

sure

[Dr Jekyll]

Silver993tt said:

Dr Jekyll said:

Silver993tt said:

Shorting inevitably comes with insider knowledge before the shorting takes place. It's a destructive approach to many companies that are perfectly healthy financially.

Should be outlawed indefinetly

...... and insider trading is outlawed anyway.

sure

What makes you think a ban on short selling would be any easier to enforce?

[DOOG]

VladTheDad said:

You can't "cause a drop in share price" that would be market manipulation - which is very naughty), but you can bet that it will happen.

Edited by VladTheDad on Wednesday 24th September 15:30

Of course you can...

If i was a large holder and wished to quickly liquidate a position, i could move a stock easier... How many i would need to sell depends very much on the stock.. Large caps could take millions, small caps sometimes as few as 20k..

Selling a long position or creating a short position (however badly) is not manipulation..




I agree that it isn't a silly question for the OP to ask though...

[son of a vette]

chris_w666 said:

quyen said:

tomtom said:

Ding. The lender will have a different view of the price movement to the shorter.

I guess this is true most of the time but surely, not when Lehman was going down! At one point, 25% of Lehman shares was out on loan.

Short sellers often borrow shares from investment funds that have a long term position so they are not affected by short term drops.
Pretty much true I think

A lot of short selling based on 'insider knowledge' is done blind meaning no shares are ever borrowed or actually change hands.
not really true, a short sale, is still a trade, the shares must be delivered to the buyer, I think you are thinking more of an options derivative, where someone may write a put option, and is only bound to deliver the shares if they pass a set price (strike price), quit often in these agreements if the seller or writer of the option gets it wrong, they will just pay the margin (difference between the values to the buyer of this option

Insider trading has always been outlawed but is extremely hard to prove it is going on.
true, as far as I am aware just a handful of people have ever been prosecuted for this in the uk, the yanks are much better at getting convictions in this than we are, remember Martha Stewart

Short sellers are basically gamblers and they can lose big as well as win big.
Not really true, a short sale is still just a trade, there must be two parties, one optimistic (bullish) and one pessimistic (bearish) about the stock, hence both parties must believe they are doing the right thing in the trade or it would never happen, again I think you are thinking of derivative options betting on the movement of a particular index or individual stock (or anything that can be measured for that matter), but even then at the very worst it must be educated gambling as again there must be two parties with opposing views involved


:donsflameproofcoatincaseanyofthatiswrong:

I may well be wrong in this too, not my particular field, though I'm sure one will be along soon to correct the both of us.

Cheers, C

[chris_w666]

son of a vette said:

chris_w666 said:

quyen said:

tomtom said:

Ding. The lender will have a different view of the price movement to the shorter.

I guess this is true most of the time but surely, not when Lehman was going down! At one point, 25% of Lehman shares was out on loan.

Short sellers often borrow shares from investment funds that have a long term position so they are not affected by short term drops.
Pretty much true I think

A lot of short selling based on 'insider knowledge' is done blind meaning no shares are ever borrowed or actually change hands.
not really true, a short sale, is still a trade, the shares must be delivered to the buyer, I think you are thinking more of an options derivative, where someone may write a put option, and is only bound to deliver the shares if they pass a set price (strike price), quit often in these agreements if the seller or writer of the option gets it wrong, they will just pay the margin (difference between the values to the buyer of this option

Insider trading has always been outlawed but is extremely hard to prove it is going on.
true, as far as I am aware just a handful of people have ever been prosecuted for this in the uk, the yanks are much better at getting convictions in this than we are, remember Martha Stewart

Short sellers are basically gamblers and they can lose big as well as win big.
Not really true, a short sale is still just a trade, there must be two parties, one optimistic (bullish) and one pessimistic (bearish) about the stock, hence both parties must believe they are doing the right thing in the trade or it would never happen, again I think you are thinking of derivative options betting on the movement of a particular index or individual stock (or anything that can be measured for that matter), but even then at the very worst it must be educated gambling as again there must be two parties with opposing views involved


:donsflameproofcoatincaseanyofthatiswrong:

I may well be wrong in this too, not my particular field, though I'm sure one will be along soon to correct the both of us.

Cheers, C

I was halfway there that'll do.