Friday, February 09, 2007

More on WSJ's "How Borrowed Shares Swing Company Votes"

There are some letters to the Editor in today's WSJ on this. (p.B5) I blogged on the original article Here.

The thrust of the letters seems to be that the phenomenon of "empty voting", or voting borrowed shares in order to influence corporate governance without benefit of having bought sufficient shares to properly do so is not common, and would violate a federal reserve margin regulation. Thank heaven. But should that be sufficient comfort? I'm glad that "empty voting" is uncommon.

It should be nonexistent. I would argue that it is wrong whenever it occurs or is attempted and should be precluded as suggested in the original article by a requirement that shares be owned in order to vote them. If this complicates life for short sellers, that's tough. Perhaps short sellers would have to offer their borrowed shares "ex-votes", with the votes only following when they close out their position! Wouldn't that be fun for the brokers? Buyers could refuse to buy, or limit their order to "owned shares", making the borrowed shares a little less valuable. Woo-hoo!

Doing this might even offer a way to get realtime aggregated short selling information to all market participants, and a way for the regulators to quickly target instances of another "uncommon" abusive speculative practice sometimes seen, the selling of shares in excess of those available for borrowing. Don't even get me started on that!

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