Journey Energy Inc JRNGF

Naked SHORT SELLING

[hawkowl1]

Is This The Beginning Of The End Of Naked Short Selling In Canada? | OilPrice.com

So far, naked shorters have gotten away with their destructive market tactics due to a loophole that requires them to have a “reasonable expectation” of settling a trade without actually borrowing the stock. That loophole may have turned the Toronto Stock Exchange (TSX) into a free-for-all.

The disruption doesn’t end there, either. Stocks are sent into a tailspin when shorters fail to settle a trade and cannot find any stock to buy back, meaning that there are more shares which seem to be outstanding than there really are on the market. It’s an existential crisis for companies targeted by naked shorters. While technically, traders only have two days to settle those shorts, they are often given 10 days under “exceptional circumstances”, according to CME.

And as far as some Canadian regulators are concerned, all circumstances appear to be “exceptional”.

The most insidious aspect is this, though: The funds behind these big naked shorts are highly sophisticated machines that can easily take full advantage of any loopholes, not to mention the Canadian regulators. We have talked to dozens of lawyers and traders who attest that these naked shorters have had no trouble staying naked for months when the actual limit is technically two days. That kind of time frame is destroying companies.

While all of these sophisticated naked shorting machines are already getting the 10-day grace period that they shouldn’t be getting in the first place, they also have a strategy for the 11th day: They simply shift their bets to another related company so that the clock starts all over again. That practice is called “kiting”. 

In other words, they simply move their position from one broker or dealer to another--endlessly.

Indeed, it’s not even clear to many whether naked short selling is legal or not, given all the loopholes that make it so prevalent.