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Delivery failure close-out

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Date Issued:
2008
Summary:
A generally illegal form of short selling in United States equity markets, called "naked shorting," occurs when a seller of stock sells shares that do not exist. This type of short selling has negative consequences that result from the tactic's ability to be used as a tool to artificially inflate an issuer's stock supply, which introduces significant harm to the integrity of the market's natural forces of supply and demand. Newly adopted amendments to the Securities and Exchange Commission's short sale governance regulation, called Regulation SHO, required the mandatory purchasing of shares by certain market participants in order for those participants to close-out previously excused delivery failures, called "grandfathered" failures. This study examines the consequences of this new regulation, in terms of share price and volume, for those few securities that had the most persistent delivery failure problems. Because the regulation mandates the purchase of shares by certain influential market participants, I examine if the stock markets of these securities exhibited unusual volatility which may be indicative of the market maker trying to cover at low cost. Using technical analysis techniques, such as volume surge detection (using moving volume averages), the performance of the target securities will be compared with appropriate benchmark indices for the purpose of detecting unusual activity. Unusual activity may be consistent with my hypothesis that market makers may encourage additional volatility to cause liquidity problems for marginal investors which forces them to sell part or all of their position. As discussed in great detail, the extra marginal shares injected into the market by the action of forced selling by these marginal investors may be used by the market makers to lower their cost of regulation compliance.
Title: Delivery failure close-out: an event study on the effects of newly adopted regulation SHO amendments.
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Name(s): Scherle, Richard.
Harriet L. Wilkes Honors College
Type of Resource: text
Genre: Thesis
Issuance: multipart monograph
Date Issued: 2008
Publisher: Florida Atlantic University
Physical Form: electronic
electronic resource
Extent: vi, 29 leaves : ill. ; 29 cm.
Language(s): English
Summary: A generally illegal form of short selling in United States equity markets, called "naked shorting," occurs when a seller of stock sells shares that do not exist. This type of short selling has negative consequences that result from the tactic's ability to be used as a tool to artificially inflate an issuer's stock supply, which introduces significant harm to the integrity of the market's natural forces of supply and demand. Newly adopted amendments to the Securities and Exchange Commission's short sale governance regulation, called Regulation SHO, required the mandatory purchasing of shares by certain market participants in order for those participants to close-out previously excused delivery failures, called "grandfathered" failures. This study examines the consequences of this new regulation, in terms of share price and volume, for those few securities that had the most persistent delivery failure problems. Because the regulation mandates the purchase of shares by certain influential market participants, I examine if the stock markets of these securities exhibited unusual volatility which may be indicative of the market maker trying to cover at low cost. Using technical analysis techniques, such as volume surge detection (using moving volume averages), the performance of the target securities will be compared with appropriate benchmark indices for the purpose of detecting unusual activity. Unusual activity may be consistent with my hypothesis that market makers may encourage additional volatility to cause liquidity problems for marginal investors which forces them to sell part or all of their position. As discussed in great detail, the extra marginal shares injected into the market by the action of forced selling by these marginal investors may be used by the market makers to lower their cost of regulation compliance.
Identifier: 423587677 (oclc), 210002 (digitool), FADT210002 (IID), fau:1375 (fedora)
Note(s): by Richard Scherle.
Thesis (B.A.)--Florida Atlantic University, Honors College, 2008.
Bibliography: leaves 28-29.
Electronic reproduction. Boca Raton, Fla., 2008. Mode of access: World Wide Web.
Subject(s): Securities industry -- United States
Investment analysis -- United States
Short selling
Capitalism -- Moral and ethical aspects
Held by: FBoU FAUER
Persistent Link to This Record: http://purl.flvc.org/FAU/210002
Use and Reproduction: Copyright © is held by the author, with permission granted to Florida Atlantic University to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
Host Institution: FAU

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