In desperate times, we certainly do look for desperate measures. At least 10 countries have imposed rules and conditions to deter investors from shorting stocks. The FSA on Friday revealed a list of 29 companies it would protecting from short selling. The SEC revealed a list of 800 companies it would protect until the 2nd of October. Taiwan just recently also has banned short selling.
However, there is always a flip side. A lot of private investors and funds use shorting as part of their strategies. Definitely a lot of funds will have major losses. In fact, plans are underway to sue the FSA on the principle that they caused illegitimate "capital destruction." Hedge funds are not all evil and require shorting in options trading, risk arbitrage, convertible funds, etc. We often find hedge funds being responsible for some crises, but this time, these funds do not feel like being scapegoats.
One hedge fund manager commented on the situation: "By stopping the short sellers, you are artificially inflating prices and rewarding speculators on the long side. The measures will increase volatility.” Although this seems rather obvious, there is substance to such a statement. Shorting has also been argued to be beneficial in eliminating overpriced stocks.
For now such a ban will definitely be beneficial in bringing the global economy to equilibrium, but only time will tell how truly effective this short ban is.
However, there is always a flip side. A lot of private investors and funds use shorting as part of their strategies. Definitely a lot of funds will have major losses. In fact, plans are underway to sue the FSA on the principle that they caused illegitimate "capital destruction." Hedge funds are not all evil and require shorting in options trading, risk arbitrage, convertible funds, etc. We often find hedge funds being responsible for some crises, but this time, these funds do not feel like being scapegoats.
One hedge fund manager commented on the situation: "By stopping the short sellers, you are artificially inflating prices and rewarding speculators on the long side. The measures will increase volatility.” Although this seems rather obvious, there is substance to such a statement. Shorting has also been argued to be beneficial in eliminating overpriced stocks.
For now such a ban will definitely be beneficial in bringing the global economy to equilibrium, but only time will tell how truly effective this short ban is.
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