Short Sale

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Related to short selling: hedging

Short Sale

A method of gaining profit from an anticipated decline in the price of a stock.

An individual who sells short sells either stock or Securities that he or she does not own and that are not immediately ready for delivery. Generally the seller borrows the shares needed to cover the sale from a Broker and then delivers these shares to the buyer. The seller deposits an amount that is equal to the value of the borrowed shares with the broker. This amount stays on deposit with the broker until the stock is returned. The seller must ultimately return the same number of shares of the same stock to the broker, and the transaction is not fully executed until the stock is returned. The broker lending the stock is entitled to all the benefits he or she would have received if the stock had not been lent. When a dividend is paid, then the seller-borrower is required to pay the broker-lender an amount equal to the dividend.

References in periodicals archive ?
The Dubai Financial Market (DFM) said it has admitted Al Ramz Capital as the first Regulated Short Selling (RSS) Service Provider to focus on providing market participants with a diversified array of products and services that enhance trading activity and market liquidity.
Al Blooshi added: "The technical short selling service benefits brokerage companies, their customers, market makers and any entity deemed efficient by ADX to use this service.
Since the 2008 Financial Crisis, regulatory authorities have established a short position reporting regime to make information available to the public when a listed company is at a short position; however, the purpose is not to ban or limit the act of short selling, but to increase market transparency, and to provide market participants with a fair battlefield.
The level of private information contained in short selling has been recently debated.
The rule therefore prevents short selling from interfering with offering prices.
The article documents that before the existence of Rule 201, short selling declined for stocks that experienced a 10 percent intraday decline, apparently because prospective shorters decided that the stocks had "bottomed out." That means that Rule 201 is a solution for a problem that doesn't exist--there isn't much shorting of the stocks that the rule protects.
In Australia, the Australia Securities and Investment Commission (ASIC) banned all forms of short selling; the ban was made permanent when the Corporations Amendment (Short Selling) Act 2008 (Short-selling Act) became law on December 11th, 2008 (4).
Professor Boehmer and co-authors, and EDHEC Business School Professor Abraham Lioui have also looked at the consequences of the previous short selling bans imposed in the USA, UK and continental Europe in 2008.
Jean-Paul Servais, chairman of the Financial Services and Markets Authority, which modifies the rules of short selling, said the ban was imposed "in the light of the high level of volatility that financial markets are currently seeing, and out of a concern for consistency with the actions of other regulators" in Europe.
In addition to the disclosure rules, the proposal would give national regulators powers to temporarily restrict or ban short selling in any financial instrument, subject to coordination by ESMA in exceptional situations.
(7) Third, Chen and Singal argue that put buying is less risky than short selling. Although this view is widely held, we suggest that careful consideration leads to its rejection.
The European Union has announced that it has introduced curbs on short selling as well as derivative deals.