Naked Face-Off: Long and Short of Banning Shorts

CNBC this afternoon offers up a point/counterpoint on Germany’s ban on naked short-selling and the general principle of forbidding sales of securities one doesn’t own or hasn’t borrowed.

Naked shorting is wrong, says Bill Spiropoulos, CEO of CoreStates Capital Advisors, and should be stopped. “When you see stocks get blasted with flash trading, it destroys the entire confidence in markets,” he said on air. “And the roller coaster activity makes people run to the sidelines and they have no interest whatsoever in investing.” The flash crash of May 6 being a prime example of casinos in his mind.

Short-selling is good, asserted Barry Ritholtz, head of FusionIQ. “Outlawing short-selling is a mistake,” he tells CNBC, because “If you go back over the last few decades, every major fraud [Enron and WorldCom] has been uncovered by short-sellers.” Now, Ritholtz doesn’t seem to address naked selling specifically, but he doesn’t seem to have any sympathy for Europe’s desire to avoid the naked shorts. The European markets’ problems are “an excuse for something that was due to happen anyway.” Ritholtz would like to see more focus on the ratings agencies, the real problem in the financial crisis, in his view, and on the normalization of derivatives, which are trading separate from every other kind of trade.