Correct Proga, direct naked short selling is illegal now, as...

Correct Proga, direct naked short selling is illegal now, as prescribed by ASIC Regulatory Guidance and Corporations legislation.

But there are indirect ways around it that can amplify the total short position as may be the case for SYR.

It would be frowned upon by ASIC if detected – but detection would be highly unlikely and even then, technically not illegal, using the right procedures.

I cannot disclose how a (large) market player would engineer this for ethical reasons and risking boring the pants off everybody with technobabble, but if you think about how banks “manufacture” cash out of thin air through the process of lending and deposit cycles, you may get the gist of it.

Of course, the leveraging of shorts could result in a crisis for the shorter but the big end of town has sophisticated risk management functions integrated with the front and back office dealing functions to hedge against such exposure using financial instruments, derivatives like forwards and options, commodities, etc. not necessarily involving SYR shares or related instruments.

The question is, “How far can the rubber band stretch” before the risk cannot be safely hedged. The potential pain threshold will rise as the SYR share price rises with hedges possibly becoming increasingly out of kilter.

Hopefully that will be soon as positive announcements immerge and positions must be unwound.

If someone blinks, we have toast. No doubt they are discussing an exit strategy among themselves now – also illegal – but that is how it works.

So, shorting that is effectively naked can and probably is done in general.

Saint