What benefits could issuers have listing on a market like Upstream where short selling is prohibited?
By Anastasia Samaras
What is short selling?
Short selling, a speculative investment strategy, revolves around capitalizing on a stock or security’s price decline.¹ The technique involves borrowing shares from a broker and selling them at the current market price. Later, the investor buys back the shares at a lower price and returns them to the broker, pocketing the difference as profit.
Naked shorting, an unlawful practice, entails short-selling shares that haven’t been definitively confirmed to exist. Such unethical maneuvers can unjustly influence the capital formation process for issuers. The repercussions of short selling can be detrimental, causing heightened market volatility, diminished investor trust, and manipulative conduct.
Just last week, the U.S. Securities and Exchange Commission (SEC) recently implemented new rules for increased transparency in short selling. We believe this is a positive step toward a more transparent market, but our team sees this as a stepping stone towards markets that remove the opportunity for market manipulations to occur, like Upstream’s global retail investing app.
Upstream, a regulated MERJ Exchange market powered by blockchain technology spearheads a novel trading approach that inherently disallows short selling. Upstream features public orderbooks that transparently display all best bids and offers for everyone to see. Trades execute peer-to-peer in real-time, settle instantly, and predatory market manipulations are prevented with smart-contract technology. The aim is to cultivate an equitable and steady trading atmosphere that benefits both issuers and investors.
What a market without Short Selling looks like for issuers
Here’s how an exchange with no short selling can be advantageous for issuers:
- Stability in Stock Prices: Prohibiting short selling can potentially stabilize stock prices, preventing sudden downward spirals caused by aggressive shorting activities. The reduction in speculative pressure on the stock could inspire confidence among investors and help maintain a more accurate perception of the company’s performance.
- Enhanced Investor Confidence: By eliminating the possibility of short selling, issuers can instill a sense of security and confidence among investors and potential stakeholders. This can encourage long-term investments and promote a more positive outlook for the company’s future prospects.
- Mitigation of Manipulative Practices: The absence of short selling can reduce the risk of other manipulative practices, which can in turn safeguard the issuer’s stock from unjustified price fluctuations that could be triggered by speculative or malicious activities. This works to foster a more secure and transparent trading environment for the company’s securities.
- Improved Capital Planning and Risk Management: Without the impact of short selling, issuers can more accurately assess and manage risks associated with their capital planning. They can make informed decisions based on a more stable and reliable market valuation, allowing for better strategic planning and long-term growth initiatives.
- Long-Term Value Creation: With a focus on promoting a stable and conducive trading environment, the absence of short selling can encourage a long-term perspective among investors and the issuer. This can facilitate a culture of value creation, emphasizing sustainable growth strategies and fostering investor trust in the company’s long-term potential.
While proponents of short selling can argue that removing short selling could limit price discovery or lead to an imbalance between supply and demand; we argue that the potential benefits for an accurate and transparent marketplace outweigh these potential outcomes.
By curbing short selling, issuers can potentially benefit from a more predictable and secure market environment, facilitating their ability to plan and execute long-term strategies with greater confidence and reduced volatility.
Upstream is actively accepting listing applications from issuers who are seeking to offer their shares to a modern-day investor pool. Learn more at: https://upstream.exchange/GetListed.
U.S. persons may not deposit, buy, or sell securities on Upstream at this time.
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NFTs have no royalties, equity ownership, or dividends. NFTs are for utility, collection, redemption or display purposes only. Anyone may buy and sell NFTs on Upstream. All orders for sale are non-solicited by Upstream and a user’s decision to trade securities must be based on their own investment judgement.
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