When the ALP regulates Part 2

You all know how Rudd suggested last Friday they weren’t going to regulate all short selling? You know how by Monday the geniuses banned all forms of short selling? You know  they virtually closed down large important areas of the market as participants weren’t allowed to short the underlying stocks to hedge against option trades? You know that 24 hours later they back peddled at 100 miles hour allowing market makers more leeway?

Well it took a major broker 3 days to come out with a product that is perfectly legal and allows people to short stocks.

Can’t keep good people down for long. Good one guys (Swan, Rudd) another fine mess the market had to get itself out of without your help.

10 thoughts on “When the ALP regulates Part 2

  1. I may be wrong but I didn’t see the opposition saying anything about this? Surely Turnbull as an ex banker would have some strong views on this??

    Did I miss it in all the hot air over Julie Bishop’s error in quoting the cash rate in her first interview??

  2. These guys don’t understand how the derivative market works, what counterparty risk is or that issuers of derivatives themselves mostly want to avoid naked short selling.

    Profitable opportunities for short selling are a by product of equity market participation and are lengthy and complciated processes only sophisticated particpants can engage in.

    I am going to tell those who are sceptical of short selling why it needs to exist – essentially for the benefit of portfolio managers who want to hedge their risk and banks that issue derivative products.

    If you have a portfolio manager that is heavily into a high growth area, say iron ore exploration, a “macrohedge” such as holding derivative against the ASX or Dow will not hedge you. You need a series of derivatives held against your equity positions.

    Portfolio manager – long equity, wants short derivatives (buys a put or writes a call).

    More or less, shorting a long position or going long in a short position are the same in terms of your market position. This can help us ignore the ins and outs of writing (selling) and buying put and call options for the moment.

    A bank can issue derivatives to the portfolio manager. They issue a short derivative (sells a put or writes a call). To counter the risk, they also issue a long derivative (buys a put or sells a call).

    A options trader can go long in a derivative (buys a call or sells a put) and to counterbalance this risk, shorts a share by short selling and holding the cash (keeping the interest payments) until the position is closed. The shorting of shares by the options trader closes out counterparty and pirce risk across the four transactions.

    This is like an “ordinary” example of financial intermediation. The option writer is the market maker, not the intemediary and ensures liquidity and elimination of counterparty risk.

    I guess the new product is somewhat like a CFD?

  3. Having once worked for fund managers, I fully support relegating the finance sector to it proper place ie subservient to businessess that actually produce goods and services.
    Finance sector businesses are dealing in our national currecny and so government has every right to protect the public against speculative products of all kinds that manipulate and affect share prices. It would be better for such specualtive wreckers to be on the dole where they would cause less harm.

  4. If you read today’s Oz Glen Milne reveals it was all a cunning plan by Rudd and Swan who’ve been way ahead of the curve and maybe the smartest guys in the world.

  5. Yea, I read it, Pedro. I laughed. It’s the biggest load of swill I’ve ever read. It’s amazing how it got through the editor as most of it was crap. They didn’t cut spending at all.

    He’s an idiot if he’s trying to sell Rudd and Swan and financial gurus now.

  6. I also read the Oz, and there was a column by Louise Ahern, a former adviser to the Howard Government. She points out that if K.Rudd is trueful, he would have to credit Australia’s relative stability to reforms put in under Costello. That is a better column to read!

Comments are closed.