Google and Baidu Rival Buzz Plan to Stop Short Selling before Hong Kong IPO
Oldie but a goodie
2008-07-17 11:14:34 - Buzz Technologies Inc (OTC:BZTG) has for sometime believed the company's share price has been affected by naked short selling. To Combat the naked short selling the company has announced a 1 for 1 exchange to a new foreign entity to be traded in Hong Kong and has deemed it prudent to issue a dividend in the form of a currently non tradable security from one of the Buzz Venture Capital investments that represents a distribution of part of that investment to shareholders.
This procedure although having no direct financial impact on the shareholders in the short term, as the listing of any such security would be 12 to 18 months away, it will provide a valuable marker to identify and quantify those brokers who are holding short positions in the stock. A determination of which equity will be made at company meeting
from July 21st to 23rd when management from China, Thailand, India and the Philippines will be attending the Buzz Integration and Unification Conference.
Naked Shorting has long been an issue at Buzz and across the entire American Market for sometime, while many have claimed at various points there is no such thing as naked shorting, last weeks action by the SEC followed by further action this week has left little doubt in anyone's mind that the problem is a serious threat not only to companies but to the US economy as well.
Details of the SEC action.
US corporate regulator, the Securities and Exchange Commission, has invoked emergency powers to put a temporary ban on "naked" short selling of securities in the troubled mortgage financiers Fannie Mae and Freddie Mac and several investment and commercial banks.
In taking such drastic action the SEC made it clear it was motivated by concern that short sellers had been destabilising the stock market by deliberately spreading false rumours about companies in an attempt to drive down their share price and enable the sellers to cover at a profit.
The SEC only last Friday announced it intended to immediately conduct investigations aimed at preventing the manipulation of share prices by intentional spreading of false information, but even if the commission can find proof it would take time. Slapping a temporary ban on short selling may be a more effective way of taking some of the stock market heat off financial stocks, particularly Fannie Mae and Freddie Mac.
The SEC has long had the power to make emergency orders, but seasoned observers cannot recall it previously being invoked, describing the latest move as unprecedented.
Normally, a proposed rule change by the SEC takes at least two months and must involve public consultation. In fact, the commission already had such a proposal under way on what it called abusive naked short selling.
Naked short selling -- selling securities the seller doesn't own or hasn't made arrangements to borrow -- is covered by the SEC's existing anti-fraud rules on manipulation of stock prices. The practice is technically not illegal but dealer-brokers are required to have "reasonable grounds" to believe the securities can be borrowed to allow settlement.
Until now, the brokers have been able to rely on the assurances of customers, but the SEC proposes to put the onus on the sellers by making it unlawful for them to deceive brokers-dealers as to their ability to deliver securities on time.
This rule change is now out for comment but the SEC has obviously decided it can wait no longer. Its emergency order stipulates that a seller must have made arrangements beforehand to borrow securities before going short -- that is, naked shorts are banned and only covered shorts will be allowed.
However, the order doesn't apply until Monday and only lasts for nine days. The SEC can extend the order but it cannot apply for longer than 30 days.
The order applies to only 19 stocks at present, including Fannie Mae, Freddie Mac, Lehman Brothers, Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Daiwa Securities, Deutsche Bank, Allianz, Goldman Sachs, HSBC, JPMorgan, Merrill Lynch, Morgan Stanley and UBS.
However, SEC chairman Christopher Cox told the US Senate Banking Committee that the regulator would introduce a rule to "address the same issues across the entire market".
The SEC says it has acted because false rumours can lead to a loss of confidence in the market, resulting in panic selling, which is exacerbated by naked short selling. As a result the prices of securities may "artificially and unnecessarily" decline well below those resulting from the normal price discovery process.
In recent days, the regulator says, false rumours have continued to threaten disruption of the market. As a result, the commission has concluded "there exists a substantial threat of sudden and excessive fluctuations of securities prices generally, and disruption in the functioning of the securities markets that could threaten fair and orderly markets". Hence the emergency order.
It's difficult to avoid the conclusion that the main aim of the ban is to defeat, or at least slow, the bear attack on Freddie Mae and Freddie Mac, which between them guarantee $US5 trillion, or half, of the US's home mortgages, and which have lost two-thirds of the value of their securities in recent trading.
A collapse of that duo would have had such dire consequences the US Government has been forced to agree they will be allowed to borrow from the Federal Reserve and the Government will inject funds, if necessary, by buying equity in the companies.
Short selling is not responsible for the slump on Wall Street and other markets throughout the world, including Australia. Blame that on the sub-prime crisis -- the widespread securitisation of sub-quality mortgages, and the resulting dislocation of the debt and equity markets.
However, the SEC is not alone in focusing on short selling. In Britain, where some of the country's major banks have been forced to raise equity from shareholders, the regulator, the Financial Services Authority, has required disclosure of short positions during rights issues if they exceed more than a mere 0.25 per cent of the company's capital and has threatened, if necessary, to take further measures, such as limiting stock lending during a rights issue.
The Australian Securities and Investments Commission has confirmed that it is paying closer attention to the circulation of false rumours to push down the price of a company's securities, warning that it is a criminal offence. The regulator has made formal requests for information from a number of market participants about trading in certain securities. Short selling has also come under heavy criticism in Australia, particularly following the collapse of Opes Prime and Chimaera, which used a stock lending model for their margin lending activities, resulting in retail clients unwittingly handing over legal title to securities that they put up as collateral.
Australia generally has better rules than the US on short selling, including a rule that no more than 10 per cent of a company's securities can be short sold, and the uptick rule, which prevents shares being shorted at a lower price than the previous ordinary sales.
The US used to have an uptick rule but scrapped it a year ago, which many contend has led to an increase in short selling and much greater market volatility. A leading US law firm, Wachtell, Lipton, Rosen and Kratz, has called on the SEC to reinstate the rule.
About Buzz
Buzz Technologies, Inc. is a convergent media company with operations ranging from infrastructure development to online retail.
The foregoing press release contains forward-looking statements based on the Company's beliefs as well as assumptions made by and information currently available to the Company, including statements regarding the timing of the introduction of certain products. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties which are identified and described in the Company's registration statements and periodic reports on file with the SEC, some of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of a variety of factors including, among others, issues related to the travel and transportation industries, and prevailing economic conditions in general. In light of these risks and uncertainties, or should underlying assumptions prove incorrect, there can be no assurance that the forward-looking statements contained in this press release will in fact transpire or prove to be accurate.
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