This piece of information comes by way of the "Financial Ninja." "The short selling ban is no such thing. The ban prevents the shorting of the cash equities on the banned list. However, futures contracts were never included in this ban.
Suppose I really wanted to get short the banned financials and had the financial wherewithal, like hedge fund. How do you suppose I go about doing that? Well, quite simple really. How about I short the entire market using the S&P futures contract, and then go LONG everything I don’t want to be short via different equity baskets, ETF’s, options, and swaps. This would leave me NET SHORT ONLY THOSE VARY SAME BANNED FINANCIAL STOCKS. (Granted, this is terribly inefficient, but it works.)
How long do you suppose it took those hedge funds to figure that one out? You think just maybe they poured over their models over the weekend and tweaked them real quick?
Furthermore, option market specialists have been exempted from the ban. This means I can buy puts in quantity while the specialist then goes out and shorts cash equities to hedge his/her exposure to the puts he/her just wrote me.
So what has changed? Not much, except that it is a little more difficult and a little more complicated. Perhaps just difficult and complicated enough to keep the “Little Investor” from getting and staying short, but not nearly difficult enough for the “Professionals.” The “Little Investor” is screwed again."
There you have it. If you have the financial wherewithal, you can get completely around the ban on shorting financial stocks; and, that is exactly what is happening.
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