ABOLISH SHORT SELLING IN FINANCIAL MARKETS
President Barack Obama
U.S. Congress, SEC,
Canada Prime Minister Stephen Harper,
Canada Finance Minister James Flaherty, OSC,
and their equivalents in other countries as indicated by signatories
The Public and their representatives are advised that a little known but longstanding stock market practice called short selling has escalated out of control in recent years to such an extent as to amplify current financial and economic problems. Even people who do not own stocks or mutual funds are being affected by this little understood activity as jobs, pensions and businesses suffer from its debilitating effects. Essentially the problem is that short selling undermines companies (even whole industries or sectors) by introducing virtual electronic duplicate or counterfeit shares into stock markets, that competes with, and therefore undermines, all similar assets. This is not just an investors' worry, it impairs the ability of businesses and employers to raise capital or maintain lines of credit, which can be crucial to their survival. Short selling is legal at present, but an illegal kind of short selling, called naked shorting is similar but more insidious. Regulators are unable (or unwilling) to stop the one, or to recognize the destructive effects of the other. The expansion of this little known technique to major proportions, is both cause and effect of the growth of hedge funds, and the expansion of recent bubbles as duplicated shares proliferate throughout the market, undermining the entire economy. Therefore, we believe it is in the public interest to abolish all forms of short selling in all markets (stocks, futures, commodities, etc.)
Inasmuch as short selling is based on the surreptitious duplication of one asset into the hands of two different owners, and notwithstanding that legal fine print declares that shares in margin accounts, funds, pensions, etc may be 'borrowed' for the purpose of being sold short, it is a fact that most investors are not explicitly informed of this (or of its importance to them), they are not informed when their assets are actually borrowed, nor are investors informed if they are purchasing shares actually owned by someone else. That public markets legalize such blatant dishonesty is unacceptable.
Inasmuch as shorting has existed for a long period of time, apparently without harming markets or stopping economic growth, it is our contention that conditions have changed through the abolition of rules & restrictions, the growth of hedge funds, the creation of ETFs and short ETFs (with single, double and even triple correlations), and the proliferation of online trading, that have combined to increase short selling activity beyond what markets are able to absorb without becoming unstable. Increased short activity brings into sharper public focus, the inherent dishonest nature of the transaction, and the nature of the impact. In addition, the emergence of strong overseas competitors means that we should eliminate anything that systematically weakens our collective position.
Inasmuch as the dishonesty inherent in shorting combines with the ease and success of this self fulfilling strategy, to reward those who destroy value and enterprise. Short selling therefore breeds a moral hazard in participants and markets, so as to increase the population of short sellers, and the volume of their activity. We contend that markets were invented by humanity as an engine of growth and improvement, and not as an engine of destruction and theft, and we are opposed to rewarding such destructive, parasitic activity.
Inasmuch as occurrences of naked shorting are only discovered through "fails to deliver", and such information is forwarded but slowly through the system after initial wait periods, and inasmuch as numerous occurrences of overly long delays have gone unexamined and unpunished, and inasmuch as regulators are drawn from the ranks of industry, which itself benefits from vast commissions paid by shorters, we feel that governance is both lax and conflicted, and therefore, that abolishing all shorting activity is the only way to be sure naked shorting is not also occurring.
Inasmuch as the duplication of shares (or other assets) undermines the value of all similar assets, and inasmuch as popular market data pages do not reflect the impact of the extra shares on important investing metrics (eg. market capitalization, float), and inasmuch as it is difficult for ordinary people to access short or fails information in a timely way, we contend that it is difficult or impossible for the average investor to understand the true value of shares they own, or may wish to invest in.
Inasmuch as the market playing field is not level, but favors short sellers over businesses in certain technical ways, ie. trading limits being imposed on public companies but not on shorters.
Inasmuch as shorting and its illegal twin have spawned unintended spin-offs and consequences, such as increased volatility, manipulation, "bear raids", "death spiral financing", and the fattening of bubbles (peoples' savings sucked in), shorting has contributed to recent turmoils to such a degree it was briefly outlawed on a limited basis, lending weight to our case.
Inasmuch as the benefits of shorting claimed by many are illusory, overstated, biased, and do not justify the dishonesty, moral hazard and economic damage involved.
We, the undersigned members of the public, do hereby petition our governments to outlaw the practice known as short selling as it applies to stocks, futures, derivatives, structured instruments or any similar assets in any financial market. We contend that forward selling does not constitute short selling, forward selling being a commitment by an original creator that does not cause a duplicate to come into existence.
Finally, we are signaling our legislators to FIX the problem or face the consequences of widespread public anger, loss of trust and consequent withdrawal from the market, which would have dire economic repercussions.
This petition addresses itself to all jurisdictions allowing the practice, initially asking the United States and Canada to show moral leadership by banning shorting immediately.
Further information may be found at http://www.stopshortingstocks.com