| This is a perfect compendium of the flimflam put out by those who object to short selling. 'a physical share' No. There's no such thing. Even a physical share certificate is not a physical share. It's a physical piece of paper which documents a nebulous thing - the set of rights you have, and terms between you, the company, its management and other shareholders. 'slippage and volatility'. No. You bought the share at the price you were filled on. No slippage. One share gets lent out, one share gets returned. You are not affected by volatility in any way, because the share your get back is exactly the same as the one you lent, and the price change would have affected you anyway. 'A substantial loss' When a share your broker lent out fails to deliver (which you would never know about), the broker doesn't write to you and say 'oops, your share didn't make it back, your loss'. First of all they didn't write your name on the same before they lent it. They have a bunch of shares which they lend out. Secondly, someone will have to produce either the share or the exact amount of money required to buy an identical share at some point. Thirdly, even if they didn't, the broker would make good any loss, whether inadvertent or due to some mysterious malfeasance. That's literally the reason your broker holds capital and is regulated. A share is not like an apple. You buy a share with the clear intention of selling it to someone else one day. It's a speculative activity par excellence. People who buy apples in order to trade them are generally quite comfortable with the fact that 'their apples' are in reality just a binding contract on someone else to produce those apples when asked. In the same way, the bank does not have 'your money' in a pot somewhere. They just promise to produce it under certain conditions, and there are regulations making sure they keep this promise. I get that some people think this in itself is suspect, but if so, you are opposed to most aspects of modern finance, why pick on short sales? If you buy a share, your order to buy one will most definitely be met. They can't lend out something that hasn't been bought. You might be confusing short selling with another bugbear, order internalisation and PFOF. > If instead my money is “borrowed” without my concent for some nefarious activity What activity? Who is borrowing your money? > whose money is being stolen
Your money was used to buy the share. Want to sell the share? It's there. Want to vote the share? It's there provided that you actually paid for it with cash. Oh, you bought the share on margin? Well, the same as a car which you borrowed money to buy, the share does not fully belong to you in those circs. So depending on the rules, you might not be able to vote it. > That these shares do not exist, isn't some slip-up.
The share definitely exists. Allowing retail investors to bet on shares going up and down without any actual shares trading hands is illegal, since the 1930s. 'without your knowledge'. Everyone knows about this. That's literally why we're taking about it. >loan it out in order to sell it in the hopes of earning money if its value drops
The broker doesn't earn money if its value drops. They lend out a share, they get back an identical share. >Clearly you'd want to know if your property is being loanded out, because it means that you're incurring risk No more risk than the general risk that your broker (or bank) will fail, that the regulator got it wrong and they don't have enough money to pay everyone back, and that the govt won't step in if this happens. And you do know. And you are allowed to ask them not to do it. If you paid cash for the share. Oh, you bought the share on margin? So the broker stole someone else's money from their pot at the bank where they thought it would be taken care of, lent it to you for nefarious activity, and you spent their money on a share you couldn't afford yourself, with the express intent of making the price go up? Shouldn't that be illegal? No, margin investing is conceptually very similar to short selling and is also an accepted part of modern finance. The broker lends you money, you buy a share, you hope it goes up, when you sell the share you pay back the money. The broker lends a short seller a share, they sell it, hold onto the money, hope it goes down, when they buy back the share they give it back to the broker. There are tons of problems with finance and financialization in modern society. This isn't one of them. |