Greed for Short Selling E-Book

Edmund Jörg

• Herausgeber: Books on Demand
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 63

Veröffentlichungsjahr: 2023

Beschreibung

"Greed for Short Selling" describes an interesting sub-sector of the securities business, which has gained considerably in importance especially since the establishment of futures and options exchanges at the beginning of the 1990s. Short selling is presented in theory and practice, showing its integration into the securities business and the requirements associated with it. Let me tell you how things go together in banking, stock exchange and securities business and explain which problems exist, it questions, it is trying to giving answers and showing solutions.

Leseprobe

Table of contents

Foreword

Short selling

1.1 Delivery obligations

1.2 Risks of a short sale

1.3 Opportunity/advantage of a short sale

1.4 Short Selling Prohibitions in Germany

1.5 Short Selling Ban on the FWB

1.6 Short selling bans internationally

1.7 Relevant regulations

1.8 Can anyone short sell?

Paradox of the short sale

2.1 The paradox

2.2 Poker game

2.3 Liquidity Reduction without short sale?

Covered / uncovered short sale

3.1 BaFin exemption short selling

3.2 Pandora's Box

3.3 Stop Loss Order

3.4 Set pseudo limits

3.5 Alternative regulation registered shares

3.6 Securities in circulation

3.7 Corporate crisis and short sale

3.8 Short sale statistics

Securities lending

4.1 The securities lending itself

CFDs as derivatives

5.1 CFD trading via CFD brokers

5.2 CFD short selling

5.3 Transparency obligation

Algorithm trading

Index trading

Derivatives trading

Price development

The crux of short selling

10.1 Securities must be freely tradable (BörsZulV §5.1)

10.2 Self-service effect

10.3 Shareholder culture

Imbalance of the financial markets

Rethinking required

12.1 Roll back regulation

12.2 Reduce costs

Cum/Ex trades

The role of BaFin:

Concluding remarks:

Foreword

The stock exchange is a fascinating world and a focal point for various financial interests. Laws, regulation/compliance and settlement modalities are the corset in which market participants have to operate, and they know the environment inside out.

The stock exchange is an integral part of our financial system; it is integrated into it and technically networked worldwide. With the increasing additional establishment of futures exchanges at the end of the last century and the automation of business processes as a whole that inevitably went hand in hand with this, automation of immense proportions resulted in succession, but these effects initially remained rather hidden from a broad public.

The introduction of index trading with the futures exchanges has not only revolutionised exchange trading technically. Along with this, the dynamics have also shifted more towards futures exchanges, and over-the-counter platforms have increasingly been able to establish themselves.

The price determination of all classic stock exchange orders is carried out continuously via electronic stock exchange platforms on high-performance EDP systems, and Deutsche Börse uses this to determine the DAX price index (German Share Index) every second. In order to be able to do this, the Exchange Rules prescribe the market maker model with compulsory quotation at all times. This inevitably results in short sales, in the sequence of which the short seller has delivery obligations.

It must be seen with concern that a general use of short selling at any time and probably also increasingly in connection with securities lending activities contributes to the fact that the securities market can work efficiently, but thus also becomes highly sensitive and more price-sensitive.

The shares proportionally backed in an index unit form a bought or sold share basket that can only be closed by closing out or by cash settlement at maturity. Interdependencies with the cash market are close, and the tradability of an index based on indices determined and published online by the exchange for cash and futures trading ensures that a certain consistency of price quotations prevails in the indices across all markets and time zones. This inevitability is thought provoking. Basically, it makes almost no difference from where price developments take their course, the change of a price component in an index-relevant share or in the index itself, like a communicating tube, ensures that a constant immediate equalisation takes place here.

Computer networking therefore not only ensures that trading is always possible, but also that price fixing is possible both in the share and in the index.

A price swing in an underlying share, however determined, is immediately included in the index calculation; on the other hand, every price change in the index causes immediate market price changes in all underlying shares themselves.

Additional market price risks beyond the regular stock exchange trading of supply and demand, which is solely and exclusivly supported by market making to determine the market price, arise from non-owners as short sellers as well as from market participants who are focussed on pure index trading; also to be mentioned in this interplay are the effects from derivatives trading, which constantly and increasingly determine price movements as well as thin out the cash market.

Short selling, index and derivatives trading are to be considered under this aspect; the market maker model for the ability to calculate an index at any time is the prerequisite for this.

This is elaborated and comprehensively explained, just as the connection of short sales to the always-necessary securities lending makes it clear, as the delivery of short sales would otherwise not be possible at all from a settlement point of view. The de facto undermining of the issued quantity of securities in circulation caused by short selling in the banking system, which is exactly determined when an issue is made, shows that ownership of a securitised security does not end even when securities are lent, as securities are still held in possession, but it leads to a book-entry closure of the volume of securities in circulation through the transfer of securities and to a concomitant reduction in the tradable securitised securities issue, which I will explain to you in detail. The explanations cannot and do not represent all information on short selling, securities lending and index trading and do not claim to be complete. The intention is to deal with the topic in a generally valid and brief but comprehensible manner for everyone, as well as to show how this sub-sector fits into the stock market environment and beyond.

In which fields is there a need for regulation? Knowing full well that hardly anyone wants to know anything about this, let alone that anyone is interested at all - not the people involved, not the financial industry, not the politicians and probably not even the financial supervisory authority BaFin itself.

The current market model is seen as inherent in the system, but it must be questioned because it is about the investor who is left behind. The issue is completely ignored here, as the need for regulation has supposedly been solved with the "crutch of covered short selling", good money is being earned and bubbling levies and taxes ensure peace and quiet.

Well, there is an immediate need for action. This topic drives me as an author. Other focal points are the functioning of the stock market in Germany with Deutsche Börse, the Eurex derivatives exchange and its settlement and clearing systems as well as the presentation of economic backgrounds.

"Elon Musk as CEO of SpaceX and Tesla, denounces short selling quite rightly". The clearly unlawful tradability of non-negotiable securities, not prohibited by BaFin and made possible worldwide by the EU Short Selling Regulation, causes the aforementioned unauthorised immobilisation of an issue.

Edmund Jörg, Kempten/Allgäu in April 2023

1. Short selling

Basically, a securities short sale is the sale of securities that are not owned, also known as "shorting" or "going short".

Nowadays, this short selling is largely practised in the cash market, but it can also take place on the futures market.