The following piece was authored by Dick Del Bello, a senior partner at Conifer Securities, LLC, a U.S.-based prime brokerage and provider of comprehensive business and operations solutions to hedge funds and investment managers.
Investors may end up holding the short end of the stick if the SEC isn't extremely careful in recommending proposed new regulations governing short sales. At stake will be the future of one of the free markets' best systems for policing and acting on corporate ineptitude.
While individual investors, be they retail, or institutional, may be hamstrung by the fortunes of an individual company in which they have invested long, the overall market is not. That is true because of the ability of investors to short a company's stock, in effect hedging their bet on a company's prospects. The decision to short may be based upon their opinion that the company's business plan, management, performance or products, warrant the stock being overvalued in comparison with its peers, or on an absolute basis.
Shorting in itself is one of the most important aspects in the business of market checks and balances that serves to keep regulatory filings honest, material disclosure complete and communications with the market above board. It is also one of the most misunderstood. The mere whiff of impropriety by the legions of cranially endowed short sellers can be a punishing tool for managements ......................
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