I'd think that in such a framework, shorting would just need to become a longer term bet. So one could offer something like 2,5,10 year LEAPs, but restrict their trading to a window of 1 week per year (e.g. one can trade derivatives as much as one wants, but only during week X, which is the week when all derivatives expire, and all derivatives are long term).
Also for options, one would need to always require traders to be covered with the actual stock.
Not only it's a bad idea to ban shorting, but it's almost impossible to do outside regulatory action by the SEC and even then.
Shorting is essentially borrowing the control of stock to some other party. That's it. It doesn't have to be done on the market, it can be done in a private, confidential contract where I oblige myself to sell my stock when directed to do so by yourself, provided adequate warranties exist that you will cover the price difference when I want to purchase it back.
For this ceding of control, I get paid. The market only "sees" regular buying and selling of stock.
Ignoring the SEC for a moment, I don’t follow your reasoning. Why couldn’t buying shares require you to sign a contract that you’re not going to engage in various activities such as shorting? That would preempt any private arrangement you attempt to make. You of course could make an illicit secret agreement but you’d still be breaking and invalidating the contract you bought your shares under exposing yourself to various risks and penalties
If traders have to be covered with the actual stock, would that mean they can only short Foo shares up to the amount they own? Surely that's equivalent to just selling your holdings?
Or are there people who'll loan out their stocks for 10 years, trusting the borrower has enough cash not to go bankrupt in 10 years no matter what happens?
> If traders have to be covered with the actual stock, would that mean they can only short Foo shares up to the amount they own? Surely that's equivalent to just selling your holdings?
If you own stock, you’re loaning it out to short sellers all the time. Almost any brokerage includes in its contracts the right to loan out its customer’s interest to shorts.
The short seller has an account with a brokerage, the broker is ultimately on the hook for making sure that any borrowed short interest is returned. This is why brokers have margin requirements.
Betting is contrary to investing but anyway, going along on your argument :
Betting on a company failure on long term is called "Insurance". Insurance companies bet that your house will burn for example. Do you think it's viable on long term for individuals (a.k.a, lambda people) to bet ( "invest" ) this way ?
Why would you completely disallow shorting ?
I'd think that in such a framework, shorting would just need to become a longer term bet. So one could offer something like 2,5,10 year LEAPs, but restrict their trading to a window of 1 week per year (e.g. one can trade derivatives as much as one wants, but only during week X, which is the week when all derivatives expire, and all derivatives are long term).
Also for options, one would need to always require traders to be covered with the actual stock.