manipulative short selling

THERE are quite a few branches of big stockbrokers along the Manly-Warringah peninsula. I prefer them because they are backed by strict rules, detailed research and substantial capital.

In one such broker’s office last week I noticed a roll of paper on his desk stretching to the floor.

He ran his finger down a long list. It included hundreds of transactions. He had lodged a selling order with the ASX and each sold transaction showed one, two or three shares traded.

He crumpled the paper and threw it into the waste paper basket in disgust.

"I’m trading against a computer," he said.

In recent weeks most of the stock exchange activity has been driven by computer algorithmic trading untouched by human hand, or by rumour-driven short selling.

Let’s see if we can dissect a short sell that tricks retail investors very much like a three-thimble con game.

Mesoblast (ASX.MSB), priced at $8.51 is an Australian biotech success story.

The company is researching the ability to create one’s own stem cells. The research has been recognised worldwide by big pharma to the extent that the US company Cephalon has spent $243 million to buy 19.9 per cent of Mesoblast.

Recently, both companies together received the joint USA and Canada Licensed Executives Society 2011 Deals of Distinction Award" for Life Sciences.

Some brokers have a price target on the company of over $21.00.

The price pattern of the stock over the last several weeks is revealing. For several trading sessions the turnover averages about 500,000 shares then suddenly jumps to over imillion and then falls back again to around 500,000.

However, the real coup d’etat came last Friday when turnover jumped past 2.6 million. The stock fell from $9.50 to $7.67, a fall of 20 per cent before recovering and closing at $8.45, rising 10 per cent off its low.

Mesoblast received a "Please Explain" the price fluctuations and increased trading volume from ASX Compliance and responded that it "was not aware of any information that has not been announced, which if known, could be an explanation of recent trading in the Company’s securities".

Mesoblast then added a review of its activities released to the ASX.

Obviously, the ASX query was a formality because the pattern of trading revealed the short selling of Mesoblast shares.

The problem was not Mesoblast’s but the short selling manipulation on the ASX. This rumour driven, manipulative short selling was and is the problem.

The ASX receives revenue from shares that are bought and sold: the bigger the volume, the bigger its profit.

The stockmarket watchdog is the ASIC. The stock market manipulation obvious to investors is the responsibility of the ASIC.

Short-selling rumours are driving retail investors out of the stock market. It’s done by short selling hedge funds. The rumours are fed to the media and online share trading chat rooms aimed at influencing market movers.

Let’s see if we can dissect a short sell that tricks retail investors very much like a three thimble con game

Caption Text:
Who is watching the watchers? The Australian Stock Exchange is allegedly monitored by ASIC. But is it? Picture:JAMES CROUCHER ... CHEERS VIN