prr positives & negatives, page-54

Last December was marked by extraordinary short selling of the stock as they played on weakness during the holiday period. Heres hoping its not repeated again this year. As naked short selling is not permitted, there is a presumption that for the substantial shorting that occurred December 2011 there must have been someone holding a lot of shares that was willing to lend them through their broker to cover the shares short sold.

At the time it had me puzzled that anyone with a significant holding would engage in this given short selling has a deleterious impact on the stock price and would devalue the capital value of their stock. The gain they would have made from the fees applied to the lending of the stock I would have thought would be negligible in comparison.

I did wonder at the time whether the stock may in fact have been subjected to illegal naked short selling, that is , where actual stock has not been borrowed. However, I thought no more of it as I convinced myself there would be no way any broker would accommodate it due to its illegality.

However, I recently noted on the General forum of a poster who apparently was caught in a situation where naked short selling appeared to have occurred when he bought some shares and the short seller was then unable to deliver the shares to the buyer because the stock suddenly went into a trading halt and the short seller could not then buy stock to cover the transaction. This if true means that naked short selling can actually occur, notwithstanding its illegality .

Normally, the risk with short selling transactions is with the party that lends the shares but with naked short selling the buyer becomes the one at risk as occurred in the case from the General forum.This had me wondering once again whether last december it was naked short selling by some unscrupulous traders that had taken place. Remember, short sellers need the stock to go lower than their sell price to turn a profit.

Anyway, given what occurred last December, it has given me cause to keep a watchful eye on events this December. If short selling ratchets up I will likely ask ASIC to check whether the short selling is bona fide and not naked. Even if the short selling is bona fide, I would love to know who is making the shres available for short selling

Just food for thought.

Note : You may ask how is this relevant to the thread header and my response is I regard short selling as a negative. Last December it was rampant along with some posters here down ramping the stock during the month. Some have vanished since. Was their a link to the short selling? Who Knows lol?