euro plummets on short-selling ban

ei.sdraob

I mentioned this new development yesterday

the euro has plummeted this morning

http://www.reuters.com/article/idUSLDE64I08U20100519

* Euro hits 4-yr low vs dollar; Merkel says euro in danger

* German bans naked short-selling of some assets

* Euro support seen at $1.2133, then $1.2000

* Dollar index at 14-mth high as investors shun risk


The euro fell to a four-year low against the dollar on Wednesday after Germany banned naked short-selling of some securities, while comments by the German chancellor further undermined confidence in the currency.

no **** Merkel, talk about kicking a rotting corpse while its down


is this a deliberate attempt to devalue without printing too much? or are the politicians simply incompetent?

since were tied to the euro its a worrying development, well personally im better off, but sudden movements really are annoying when doing cross-border trade

Amhran Nua

Short selling is NOT the same thing as naked shorting. Naked shorting was prohibited by the SEC in 2008. Its been directly connected to the collapse of Lehman, see here

http://www.bloomberg.com/apps/news?pid=20601109&sid=aB1jlqmFOTCA&refer=home

and I’ve no doubt there are equally good reasons to ban it here.

Short selling is selling shares 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 the lender. Naked shorting is where they don’t even bother to borrow the shares and just vaguely promise to borrow them in future.

What it does is multiply the amount of shares that are on the market, so say a company has a million real shares, there might in fact be four million shares in that company being bought and sold, and the market has no way to tell the difference between a real share and a naked shorted sale.

I see no reason to be alarmed at the prohibition of naked shorting.

ei.sdraob

You do realise that you can still naked short sell outside the institutions where it was banned?

its like banning gambling in states

you endup with money leaving the system to places that do allow it

in case you havent noticed this is already having a bigger negative impact on the euro than the Greek crisis (and two of them being so close to each other doesnt help matters)

gambling/speculating/whatever doesnt affect the economy until the state moves in to socialise the risks of these people/institutions, which im quite against as you know by now

this move is futile and all it accomplished is further weaken the euro and confidence in the eurozone

Amhran Nua

ei.sdraob wrote: »

this move is futile and all it accomplished is further weaken the euro and confidence in the eurozone

Well that and a sharp fall in the cost of insuring European sovereign debt. The market will get over having its toys taken away, just as it did when the SEC banned naked shorting in 2008. Meanwhile stability is growing and a potential crack in the dam has been plugged up.

ei.sdraob

Amhran Nua wrote: »

Well that and a sharp fall in the cost of insuring European sovereign debt. The market will get over having its toys taken away, just as it did when the SEC banned naked shorting in 2008. Meanwhile stability is growing and a potential crack in the dam has been plugged up.

yes it will get over it by moving money out of the EU

as is happening at a fast rate now

congratulations, Cutting off the nose to spite the face...

Amhran Nua

ei.sdraob wrote: »

yes it will get over it by moving money out of the EU

as is happening at a fast rate now

congratulations, Cutting off the nose to spite the face...

The EU is a larger market than the US at this stage. The Germans are taking long term precautions, and you can't expect the market to get that in the short term. Well maybe you should expect it but its fuelled as much by adrenaline as reality, as we all know.

ei.sdraob

quite a bad time to be taking "precautions" i tell ya

Amhran Nua

ei.sdraob wrote: »

quite a bad time to be taking "precautions" i tell ya

No time like the present to look after the future. Some other bright shiny object will appear and the markets will drift back, same as they always have. I have a recommendation to go short on Deutsche Börse AG that sells those derivatives in the meantime from another forum by the way*.

*not financial or investment advice, if you take financial advice from a randomer on boards you are insane.

silverharp

Anyone remember 2008 , it worked well for the stock market :rolleyes:, I see no possible problem that a short selling ban will cause now

SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets
Commission Also Takes Steps to Increase Market Transparency and Liquidity
FOR IMMEDIATE RELEASE
2008-211
Washington, D.C., Sept. 19, 2008 — The Securities and Exchange Commission, acting in concert with the U.K. Financial Services Authority, took temporary emergency action to prohibit short selling in financial companies to protect the integrity and quality of the securities market and strengthen investor confidence. The U.K. FSA took similar action yesterday.

Amhran Nua

silverharp wrote: »

Anyone remember 2008 , it worked well for the stock market :rolleyes:, I see no possible problem that a short selling ban will cause now

Its not a short selling ban.

Nate--IRL--

Here is a very basic description of Naked Shorting.

http://en.wikipedia.org/wiki/Naked_short_selling

Nate