Short Selling Opinions |
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Short sellers have a negative reputation to some. Businesses hate short sellers who target them, as the short selling drives down the price of their stock and puts the short sellers in a position where they benefit from the business's misfortune, which seems like a ripe opportunity for conspiracies against the business, especially anonymous rumors. Others portray short sellers as ghoulish characters who hope for catastrophes. There was a practice in the late 19th century of borrowing people's shares, selling them, then floating horrible rumors in the media about the companies in question, driving the stock price down, then purchasing the shares back at the much lower price. Even today, short sellers have been known to create bear raids by selling blocks of shares that they do not own. To mitigate this problem, the SEC (Securities and Exchange Commission) has instituted an uptick rule. This states that a short seller cannot cover his/her position unless the last market price of the stock was up from the previous price.
However, on 2003-10-29 the SEC announced (http://www.sec.gov/rules/other/34-50104.htm) a one year pilot program to suspend the uptick rule for 1000 listed and NASDAQ traded stocks selected from the 3000 most liquid securities.
Advocates of short sellers have stated that their scrutiny of companies' finances has led to the discovery of instances of fraud which were glossed over or ignored by investors who had held the companies' stock long. Some hedge funds and short sellers claimed that the accounting of Enron and Tyco was suspicious, months before their respective financial scandals manifested.
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