Does It Help If Short-sellers Are Forced To Disclose Their Positions?

Too Sullivan of ValuePlays is of the opinion that short-sellers get a slight advantage from the fact that they do not have to disclose their positions (Todd has no problem with short-selling itself (neither do I)). I am not too sure if the lack of disclosure is much of an advantage but Financial Services Authority (FSA), the regulator in Britain, is forcing short-sellers with sizeable positions to disclose their positions in a rights offering (thanks to WSJ Deal Journal for original mention):

The Financial Services Authority shocked the trading community a fortnight ago when it announced that investors would be compelled to disclose short positions of more than 0.25 per cent of share capital in companies carrying out rights issues.

The announcements started on Friday, and continued yesterday with 20 investors, predominantly hedge funds, disclosing short positions in seven companies that are in the process of carrying out rights issues.


The article also mentions a familiar name with short position (Harbinger Capital):

Harbinger Capital Partners, run by the former Barclays Capital trading boss Philip Falcone, revealed that it held 3.29 per cent of HBOS's market capital on loan. Harbinger is a US fund that focuses on distressed investment situations, and its HBOS position is valued at about £348m.

GLG Partners, the UK hedge fund that listed in the US last year, said it had taken more than 7 per cent in Bradford & Bingley.


I have covered Phil Falcone before, who made a fortune betting against housing last year and even alluded to the possibility of him being a Wilbur-Ross-in-the-making.

It's not clear to me if the lack of disclosure by shorts really hurts the market. Forcing them to disclose positions (so far FSA only requires it during rights issues) means that people can bet against them (this can be lethal to short-term investors if some big hedge fund or a proprietory desk at a bank attacks them). Short-selling accounts for a tiny portion of the market (but it is higher during bear markets) and generally does not have a big impact on the broad market. The only problem I see is when shorts spread rumours (taking a book from spy agencies, shorts know that the best rumours are the ones that can neither be confirmed nor refuted and simply introduces doubt) or attack small companies (small ones don't have the resources to defend themselves).

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