Email of the day - on the validity shorting and market manipulation
Comment of the Day

January 28 2021

Commentary by Eoin Treacy

Email of the day - on the validity shorting and market manipulation

It is satisfying to see some hedge funds losing because a crowd of ordinary investors are smart enough to play the game against the big guy. Does the GameStop example not suggest there is something wrong with a system that allows more short position to exist than the number of shares the company issued? Why are short positions reported only quarterly in the US? Should there not be an obligation to report short positions above a certain level in real time, at a level much less than the similar obligations for long positions (say 0.5% of the number of shares issued)? Why are short positions allowed at all? The markets are supposed to be places to raise capital, but short positions raise no capital - they are primarily used for financial manipulations that are of no benefit to society.

Eoin Treacy's view

Thank you for this note and I think a lot of people are engaging in Schadenfreude at the expense of hedge funds. The practice of initiating a short position, then putting out of bearish report has been rife over the last decade. The instigators of this practice typically cover shortly after the initial drop and move onto the next target. It’s a predatory practice and amounts to market manipulation. Putting your put option positions in 13-F filings amounts to the same thing. So, it is high time this form of manipulation was targeted.

Shorting exists because it helps the market function more efficiently. In the competitive world of finance there should be no room for the weak. The reality today is there are legions of zombie companies supported by little more than access to cheap capital.

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