Thursday, 25 September 2008

IBM added to shorting ban list

Yesterday IBM was added to the list of US stocks where shorting was banned. See FT 25th Sept 08 Click here. "Like other computer hardware groups, IBM has a finance arm that helps customers finance big IT purchases. IBM said it met the requirements for inclusion on the short selling list and being included was in the “best interests” of the company and its shareholders".

I gave my views on Shorting in my 18th Sept 08 posting. All the emails I got - except one - in response agreed with my stand. The one against was from my partner in TechMarketView - Anthony Miller - who couldn't object to my stand at that point because we hadn't launched the firm.

Anyway, Anthony wrote to me at the time saying:

"As for the ban on short selling, maybe we have to agree to disagree. I think shorting is a perfectly acceptable part of healthy capital markets; after all, if you are allowed to bet on shares going up, then you should be allowed to bet on shares going down. What’s not right – and I’m happy for this to be illegal if not already so – is to spread unsubstantiated rumours that is likely to affect a company’s stock – either down or up (gosh, how many times have we heard of rumours that are meant to push up share prices!). At best, I’d support a ban on naked shorting (where you don’t even borrow the stock).

Anyway, the ban on shorting banks etc is a bit of a band-aid measure. How long will it be before companies find creative ways to declare themselves banks (e.g. any IT vendor that provides financing to is customers – and this includes for example Computacenter as well as the very big boys with their own financial service arms by the way) to gain protection from shorting? The FSA will be mired down in requests for protection and probably take its eye off the bigger ball.

I come back to my initial premise. The root cause of the problem is that the regulators permitted traders to use fantasy financials to create paper profits on dodgy debts. This is the problem that must be fixed."

So, Anthony was (as ever) pretty prophetic. If you accept IBM's definition, we will see Sun, HP, Computacenter etal added to the 'no shorting' list soon.

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