The recent shorting attacks on companies such as Quindell, Blinkx and Globo have dismayed many new investors in UK stock markets. Indeed this is what one of our correspondents had to say: “As someone who has recently taken the advice of many, including government, to invest in the stock market, I thought you might be interested to know that I have quickly realised that the whole thing is a manipulated scam and that I will be having nothing to do with the market ever again. My experience with the attack on Quindell has put paid to any notions that there is a fair and open market to invest in. There is obviously a high degree of illegality that goes on that the authorities are incapable of dealing with and I, and a lot of others I know, will be steering well clear in future”.
It certainly appears to be the case that the FCA is ineffective in tackling the issues that have arisen in those cases, and it’s even debatable whether they have the legal powers to do so. Certainly their resources to do so seem limited. Any action they might pursue takes months if not years whereas the shorters can make their millions and depart in hours or days. Concerted shorting attacks based on the distribution of questionable information are at the core of the problem.
But there is one solution of course. Ban shorting altogether. A Government e-petition has been created to support just that and has already collected more than 4,000 signatures.
Note that some investors believe shorting helps to support a healthy and liquid market, but this writer does not. There may be some benefits, but it leaves the door open to all kinds of abuses which we have seen regularly over the years. So I have personally signed the petition.