Showing posts with label short selling. Show all posts
Showing posts with label short selling. Show all posts
Monday, January 31, 2011
Margin new short stock sell price
You can now short sell securities with a price of $1.00 or higher. Limit and stop orders with a price of $1.00 or higher will be accepted if the security is available to borrow. A minimum balance of $2,000 is required for all margin accounts, and 100% initial margin and maintenance margin is required for securities priced between $1 and $4.99.
Wednesday, October 13, 2010
Hong Kong becomes Asia's biggest short-selling market
Hong Kong has become Asia's largest market for short selling, overtaking Japan as a result of increased demand for Chinese securities.
According to a report from Data Explorers, banks, mutual funds and pensions made $245 million from loaning out Hong Kong shares in the past 12 months, in comparison with $241 million in Japan.
Emil Wolter, head of Asian regional strategy at the Royal Bank of Scotland, told Bloomberg: "As the Hong Kong market grows, there's an increasing amount of activity that is not necessarily directional, like arbitrage, program trading and more complex trading strategies that are being put to work."
He added that investors are growing increasingly "frustrated" with the Japanese market, which has been fading for a considerable period of time.
Last week, Carlo Grigioni, vice-chairman of wealth management in Singapore for UBS, explained that the incredible number of fortunes being made in Asia in the past two decades is making the region a high strategic priority for his company.
According to a report from Data Explorers, banks, mutual funds and pensions made $245 million from loaning out Hong Kong shares in the past 12 months, in comparison with $241 million in Japan.
Emil Wolter, head of Asian regional strategy at the Royal Bank of Scotland, told Bloomberg: "As the Hong Kong market grows, there's an increasing amount of activity that is not necessarily directional, like arbitrage, program trading and more complex trading strategies that are being put to work."
He added that investors are growing increasingly "frustrated" with the Japanese market, which has been fading for a considerable period of time.
Last week, Carlo Grigioni, vice-chairman of wealth management in Singapore for UBS, explained that the incredible number of fortunes being made in Asia in the past two decades is making the region a high strategic priority for his company.
Wednesday, May 19, 2010
Germany Bans Naked Short Selling
(Bloomberg) -- Germany will temporarily ban naked short selling and naked credit-default swaps of euro-area government bonds at midnight after politicians blamed the practice for exacerbating the European debt crisis.
The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, German financial regulator BaFin said today in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, the regulator said.
The move came as Chancellor Angela Merkel’s coalition seeks to build momentum on financial-market regulation with lower- house lawmakers due to begin debating a bill tomorrow authorizing Germany’s contribution to a $1 trillion bailout plan to backstop the euro. U.S. stocks fell and the euro dropped to $1.2231, the lowest level since April 18, 2006, after the announcement.
“You cannot imagine what broke lose here after BaFin’s announcement,” Johan Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt, said in an interview. “This will lead to an uproar in the markets tomorrow. Short-sellers will now, even tonight, try to close their positions at markets where they can still do so -- if they find any possibilities left at all now.”
Merkel, Sarkozy
Merkel and French President Nicolas Sarkozy have called for curbs on speculating with sovereign credit-default swaps. European Union Financial Services Commissioner Michel Barnier this week called for stricter disclosure requirements on the transactions.
Allianz SE, Deutsche Bank AG, Commerzbank AG, Deutsche Boerse AG, Deutsche Postbank AG, Muenchener Rueckversicherungs AG, Hannover Rueckversicherungs AG, Generali Deutschland Holding AG, MLP AG and Aareal Bank AG are covered by the short-selling ban.
“Massive” short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system,” BaFin said in the statement.
The European Union last month proposed that the Financial Stability Board, the group set up by the Group of 20 nations to monitor global financial trends, should “closely examine the role” of CDS on sovereign bond spreads. Merkel said earlier today that she will press the Group of 20 to bring in a financial transactions tax.
Merkel’s ‘Battle’
“In some ways, it’s a battle of the politicians against the markets” and “I’m determined to win,” Merkel said May 6. “The speculators are our adversaries.”
Germany, along with the U.S. and other EU nations, banned short selling of banks and insurance company shares at the height of the global financial crisis in 2008. The country still has rules requiring disclosure of net short positions of 0.2 percent or more of outstanding shares of 10 separate companies.
The disclosure of the rules drew criticism from lawyers who said that they should have been announced well ahead of time.
“The way it’s been announced is very irresponsible, and it’s sent many market participants into panic mode,” said Darren Fox, a regulator lawyer who advises hedge funds at Simmons & Simmons in London. “We thought regulators had learned their lessons from September 2008. Where is the market emergency that necessitates the introduction of an overnight ban?”
Short-selling is when hedge funds and other investors borrow shares they don’t own and sell them in the hope their price will go down. If it does, they buy back the shares at the lower price, return them to their owner and pocket the difference.
Credit-default swaps are derivatives that pay the buyer face value if a borrower -- a country or a company -- defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don’t own.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, German financial regulator BaFin said today in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, the regulator said.
The move came as Chancellor Angela Merkel’s coalition seeks to build momentum on financial-market regulation with lower- house lawmakers due to begin debating a bill tomorrow authorizing Germany’s contribution to a $1 trillion bailout plan to backstop the euro. U.S. stocks fell and the euro dropped to $1.2231, the lowest level since April 18, 2006, after the announcement.
“You cannot imagine what broke lose here after BaFin’s announcement,” Johan Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt, said in an interview. “This will lead to an uproar in the markets tomorrow. Short-sellers will now, even tonight, try to close their positions at markets where they can still do so -- if they find any possibilities left at all now.”
Merkel, Sarkozy
Merkel and French President Nicolas Sarkozy have called for curbs on speculating with sovereign credit-default swaps. European Union Financial Services Commissioner Michel Barnier this week called for stricter disclosure requirements on the transactions.
Allianz SE, Deutsche Bank AG, Commerzbank AG, Deutsche Boerse AG, Deutsche Postbank AG, Muenchener Rueckversicherungs AG, Hannover Rueckversicherungs AG, Generali Deutschland Holding AG, MLP AG and Aareal Bank AG are covered by the short-selling ban.
“Massive” short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system,” BaFin said in the statement.
The European Union last month proposed that the Financial Stability Board, the group set up by the Group of 20 nations to monitor global financial trends, should “closely examine the role” of CDS on sovereign bond spreads. Merkel said earlier today that she will press the Group of 20 to bring in a financial transactions tax.
Merkel’s ‘Battle’
“In some ways, it’s a battle of the politicians against the markets” and “I’m determined to win,” Merkel said May 6. “The speculators are our adversaries.”
Germany, along with the U.S. and other EU nations, banned short selling of banks and insurance company shares at the height of the global financial crisis in 2008. The country still has rules requiring disclosure of net short positions of 0.2 percent or more of outstanding shares of 10 separate companies.
The disclosure of the rules drew criticism from lawyers who said that they should have been announced well ahead of time.
“The way it’s been announced is very irresponsible, and it’s sent many market participants into panic mode,” said Darren Fox, a regulator lawyer who advises hedge funds at Simmons & Simmons in London. “We thought regulators had learned their lessons from September 2008. Where is the market emergency that necessitates the introduction of an overnight ban?”
Short-selling is when hedge funds and other investors borrow shares they don’t own and sell them in the hope their price will go down. If it does, they buy back the shares at the lower price, return them to their owner and pocket the difference.
Credit-default swaps are derivatives that pay the buyer face value if a borrower -- a country or a company -- defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don’t own.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Monday, April 26, 2010
Goldman Sachs refutes short selling claims
Goldman Sachs has defended itself in response to claims that it made large profits on betting against the subprime mortgage market.
A Senate report released over the weekend revealed email exchanges between Lloyd Blankfein, the chairman and chief executive officer of Goldman Sachs, and other executives at the bank.
In November 2007, Mr Blankfein emailed his colleagues to say: "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts."
The Senate investigation also revealed that the bank made a profit of $50 million in one day of trading thanks to taking short positions as the mortgage market began to collapse, reports the Financial Times.
Carl Levin, the Democratic chairman of the Senate panel, said that Goldman Sachs' behaviour had played a part in the financial crisis taking place.
"They were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis," he stated.
Mr Levin accused the bank of bundling toxic mortgages into complex financial instruments, before getting them labeled as AAA securities by credit rating agencies and selling them on to investors.
He added this meant "magnifying and spreading risk throughout the financial system, and all too often betting against the instruments they sold and profiting at the expense of their clients".
Earlier this year, Goldman Sachs stated that it did not make "enormous net revenues" by betting against mortgage-based products.
Goldman Sachs has hit back against the claims, stating that any negative positions were taken to balance out long-term exposure to the housing market.
It added that it did not "consistently or significantly short" the market.
The bank went on to state it had no special knowledge that meant it knew the US housing market was set to collapse and pointed out that Goldman Sachs actually lost $1.7 billion on its mortgage-related products in 2008.
A Senate report released over the weekend revealed email exchanges between Lloyd Blankfein, the chairman and chief executive officer of Goldman Sachs, and other executives at the bank.
In November 2007, Mr Blankfein emailed his colleagues to say: "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts."
The Senate investigation also revealed that the bank made a profit of $50 million in one day of trading thanks to taking short positions as the mortgage market began to collapse, reports the Financial Times.
Carl Levin, the Democratic chairman of the Senate panel, said that Goldman Sachs' behaviour had played a part in the financial crisis taking place.
"They were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis," he stated.
Mr Levin accused the bank of bundling toxic mortgages into complex financial instruments, before getting them labeled as AAA securities by credit rating agencies and selling them on to investors.
He added this meant "magnifying and spreading risk throughout the financial system, and all too often betting against the instruments they sold and profiting at the expense of their clients".
Earlier this year, Goldman Sachs stated that it did not make "enormous net revenues" by betting against mortgage-based products.
Goldman Sachs has hit back against the claims, stating that any negative positions were taken to balance out long-term exposure to the housing market.
It added that it did not "consistently or significantly short" the market.
The bank went on to state it had no special knowledge that meant it knew the US housing market was set to collapse and pointed out that Goldman Sachs actually lost $1.7 billion on its mortgage-related products in 2008.
Thursday, March 4, 2010
SEC's new short selling rules are short-sighted
The Securities and Exchange Commission's (SEC) decision to bring in tougher regulation of short selling practices has been criticized by a professor of finance.
Under the new rules, which were approved last week, restrictions will be imposed on short selling when stock falls by more than ten per cent in the course of a day.
If that occurs, then short selling may only take place at a price above the best bid for that stock.
According to SEC estimates, around four per cent of the market is affected by drops of ten per cent or more on an average day.
But the move has been attacked as "short-sighted" by Professor Larry Harris from the USC Marshall School of Business.
He told the Financial Times: "The majority of such sales reflect hedging and … if a stock price does not reflect fundamental value, retail investors will most likely end up paying more than they should for it."
Announcing the introduction of the rule last week, a statement from SEC said the intention of the new legislation is to help market stability by preserving investor confidence.
Under the new rules, which were approved last week, restrictions will be imposed on short selling when stock falls by more than ten per cent in the course of a day.
If that occurs, then short selling may only take place at a price above the best bid for that stock.
According to SEC estimates, around four per cent of the market is affected by drops of ten per cent or more on an average day.
But the move has been attacked as "short-sighted" by Professor Larry Harris from the USC Marshall School of Business.
He told the Financial Times: "The majority of such sales reflect hedging and … if a stock price does not reflect fundamental value, retail investors will most likely end up paying more than they should for it."
Announcing the introduction of the rule last week, a statement from SEC said the intention of the new legislation is to help market stability by preserving investor confidence.
Wednesday, March 3, 2010
Traders voice concern about SEC's rules on short selling
Short selling of equities continues to be a controversial strategy, prompting regulators in the U.S., Europe and Hong Kong to propose measures to make the market fairer. Traders, however, said the Securities and Exchange Commission's rule that restricts short sales will hinder liquidity.
Saturday, February 27, 2010
SEC offers mixed signals on short selling
The Securities and Exchange Commission approved a measure in a party-line 3-2 vote to limit short selling. However, the commission, including Chairman Mary Schapiro, does not say that there is any evidence that the practice is harmful to investors or that the SEC's restriction will help investors, according to The Wall Street Journal. "The self-fulfilling logic would seem to be that merely by regulating, the commission can claim to shore up investor confidence, thus justifying its decision to regulate," said Troy Paredes, one of the dissenting commissioners.
Short-sellers borrow stock and sell it with the expectation that it will fall in price. The shorts then buy back the shares at the lower price, pocket the difference and return the shares to the original owner. Sometimes, struggling companies blame short-sellers for driving down their share prices because that's easier than explaining what management has done to make investors flee the stock.
In fact, short-sellers make for a more efficient market by allowing all points of view to be expressed in a company's stock price. The SEC came to this conclusion several years ago when it abandoned the so-called uptick rule that had prevented a short-sale unless the last movement in the stock price had been up. The idea was that the rule would serve as a brake on market panics, preventing sharp declines in stock prices, while also preventing short-sellers from manipulating the market.
After years of study and a long pilot test, the SEC staff found no evidence that the uptick rule did any of these things. Studying the 2008 crisis, when the SEC enacted outright bans on short-selling many financial stocks, the SEC staff still hasn't found evidence that such limits benefit investors.
more at http://online.wsj.com/article/SB10001424052748704479404575087762656446670.html
Short-sellers borrow stock and sell it with the expectation that it will fall in price. The shorts then buy back the shares at the lower price, pocket the difference and return the shares to the original owner. Sometimes, struggling companies blame short-sellers for driving down their share prices because that's easier than explaining what management has done to make investors flee the stock.
In fact, short-sellers make for a more efficient market by allowing all points of view to be expressed in a company's stock price. The SEC came to this conclusion several years ago when it abandoned the so-called uptick rule that had prevented a short-sale unless the last movement in the stock price had been up. The idea was that the rule would serve as a brake on market panics, preventing sharp declines in stock prices, while also preventing short-sellers from manipulating the market.
After years of study and a long pilot test, the SEC staff found no evidence that the uptick rule did any of these things. Studying the 2008 crisis, when the SEC enacted outright bans on short-selling many financial stocks, the SEC staff still hasn't found evidence that such limits benefit investors.
more at http://online.wsj.com/article/SB10001424052748704479404575087762656446670.html
Thursday, February 25, 2010
SEC is divided but approves short-selling restriction
The Securities and Exchange Commission approved a measure restricting short sales of stocks when they are declining quickly, although the commission was split on the measure. Those in favor expressed hope that the move will improve investor confidence, while those against said no action was warranted. "While the alternative uptick-rule approach the SEC has adopted today is perhaps less disruptive than others that were considered, we are not convinced that implementation of this rule will provide net benefits to the capital markets and investors," said Ira Hammerman, senior managing director and general counsel at SIFMA. The SEC also said it is striving to approve a shift to international accounting standards by the end of next year.
The new rule on short sales would apply to any stock whose price has fallen at least 10 percent during a trading session. After that, short-selling would still be legal but only if the sale was at a price higher than the best bid price available at the time.
The new rule on short sales would apply to any stock whose price has fallen at least 10 percent during a trading session. After that, short-selling would still be legal but only if the sale was at a price higher than the best bid price available at the time.
Thursday, February 11, 2010
Market participants debate uptick rule as SEC nears ruling
Mary Schapiro, chairman of the Securities and Exchange Commission, said the agency is close to finalizing short-selling rules. Market participants continue to debate the uptick rule, which prohibits investors from selling a stock short until after it has increased. The SEC is also considering whether to require short-sellers to publicly disclose stocks they are shorting.
The uptick rule has been a contentious issue for the market. Those who are in favor of it partly blame the stock slide in late 2008 on the 2007 removal of the short-selling restriction, saying the removal helped exacerbate the stock losses, especially as high-speed, electronic trading was on the rise.
"The shorts were just killing these stocks," said Robert Pavlik, chief market strategist at Banyan Partners. If the uptick rule had still been in place, he said "it wouldn't have stopped or prevented people from shorting stocks, but what it would have done is in the advent of computer trading, it would have just brought it down to more of a manageable level where it would have made people slow down, take a look at the situation and assess it from a little bit better of a standpoint."
Opponents, meanwhile, see the uptick rule as an interference in the stock market that shouldn't be there. They note that short sellers provide liquidity and help prevent stocks from going too far to the upside. They also say that in late 2008, as stocks fell below where the short sellers were betting they'd go, many short sellers would cover their positions, with that covering helping buoy the stocks from sliding even more.
The uptick rule represents "an artificial barrier to the free market," said Rich Gates, founder and portfolio manager at TFS Capital. "It's as logical to us as a downtick rule where you can only buy a stock after it depreciated. If anything, we would be more in favor with a downtick rule," he said, noting that such a restriction might have helped prevent the formation of the dot-com bubble as well as the credit bubble.
As for the short-position disclosures, the consensus is that while disclosures on a quarterly basis along the lines of those made for long positions might make sense, positions shouldn't be disclosed on an immediate or daily schedule.
"There's a concern about predatory trading," said Julian Pittam, managing director of DataExplorers, which tracks short-selling activity. "If large hedge funds are reporting short selling information on a one-day delay ... that becomes a self-fulfilling prophecy. If people see all these hedge funds are shorting [certain stocks], then they'll think 'perhaps I should do it too.'"
"The shorts were just killing these stocks," said Robert Pavlik, chief market strategist at Banyan Partners. If the uptick rule had still been in place, he said "it wouldn't have stopped or prevented people from shorting stocks, but what it would have done is in the advent of computer trading, it would have just brought it down to more of a manageable level where it would have made people slow down, take a look at the situation and assess it from a little bit better of a standpoint."
Opponents, meanwhile, see the uptick rule as an interference in the stock market that shouldn't be there. They note that short sellers provide liquidity and help prevent stocks from going too far to the upside. They also say that in late 2008, as stocks fell below where the short sellers were betting they'd go, many short sellers would cover their positions, with that covering helping buoy the stocks from sliding even more.
The uptick rule represents "an artificial barrier to the free market," said Rich Gates, founder and portfolio manager at TFS Capital. "It's as logical to us as a downtick rule where you can only buy a stock after it depreciated. If anything, we would be more in favor with a downtick rule," he said, noting that such a restriction might have helped prevent the formation of the dot-com bubble as well as the credit bubble.
As for the short-position disclosures, the consensus is that while disclosures on a quarterly basis along the lines of those made for long positions might make sense, positions shouldn't be disclosed on an immediate or daily schedule.
"There's a concern about predatory trading," said Julian Pittam, managing director of DataExplorers, which tracks short-selling activity. "If large hedge funds are reporting short selling information on a one-day delay ... that becomes a self-fulfilling prophecy. If people see all these hedge funds are shorting [certain stocks], then they'll think 'perhaps I should do it too.'"
Tuesday, August 18, 2009
SEC delays decision on short-selling limits
Four months after releasing its proposal for restricting short-selling stocks, the Securities and Exchange Commission has yet to settle on an approach. The SEC has run into obstacles related to the effectiveness of the proposal as well as its cost. The agency is suggesting a different approach to the issue and has given the public 30 days to comment.
more at
Friday, July 31, 2009
SEC adds to short selling rules
The Securities and Exchange Commission (SEC) has launched a series of new measures aimed at preventing abusive short sales.
The commission has made permanent a temporary rule that reduces the opportunity for so-called "naked" short selling, which involves an investor selling shares short before borrowing them.
Under the new legislation, known as Rule 204, broker-dealers are now required to purchase or borrow securities promptly in order to deliver on a short sale.
The SEC also said that it is working alongside a number of self-regulatory organizations (SROs) in order to increase the availability of short sale volume and transaction information on SRO websites.
"Today's actions demonstrate the commission's determination to address short selling abuses," SEC chairman Mary Schapiro stated, adding that the move will also increase the level of public disclosure regarding such activity.
The commission has made permanent a temporary rule that reduces the opportunity for so-called "naked" short selling, which involves an investor selling shares short before borrowing them.
Under the new legislation, known as Rule 204, broker-dealers are now required to purchase or borrow securities promptly in order to deliver on a short sale.
The SEC also said that it is working alongside a number of self-regulatory organizations (SROs) in order to increase the availability of short sale volume and transaction information on SRO websites.
"Today's actions demonstrate the commission's determination to address short selling abuses," SEC chairman Mary Schapiro stated, adding that the move will also increase the level of public disclosure regarding such activity.
Tuesday, July 28, 2009
SEC compromises as it makes short-selling rules permanent
The Securities and Exchange Commission's rules on short-selling require additional disclosure, although the information will be delayed by a month. The rules keep positions by individual money managers confidential but aggregate data on short positions for individual stocks. Hedge funds will not be required to disclose to regulators details about their short positions.
more at
Saturday, May 23, 2009
Opposition to uptick rule might deter resurrection
While the Securities and Exchange Commission proposed resurrecting the uptick rule, traders, mutual funds and other market participants, including companies that blame short selling for their depressed share prices, expressed opposition to the move. "We know that the practice of short selling evokes strong opinions from both its supporters and detractors," SEC Chairwoman Mary Schapiro said. "I've made it a priority to evaluate the issue of short-selling regulation and ensure that any further policies in this area are the results of a deliberate and thoughtful process."
more at
Thursday, April 9, 2009
SEC To Seek Comments On Short Sales
The U.S. Securities and Exchange Commission voted unanimously to seek public comments on all the proposed rules that seek to limit short selling.
There are two types of proposals the SEC will consider possibly enacting after a 60-day comment period. One type aims to impose market-wide sales restrictions and another instead targets particular stocks that are in rapid decline.
The two market-wide restrictions the SEC will consider include a rule similar to the old "uptick" rule and a modified uptick rule similar to Nasdaq's former bid test.
In addition, the SEC also will solicit comments on three different types of "circuit-breaker" models, which would impose various restrictions on short sales for the remainder of a trading session if a particular security declined by 10%.
If a circuit breaker is triggered, then traders could be subject to either an uptick restriction, a bid test restriction, or an outright short-selling ban on a particular security for the rest of the day.
There are two types of proposals the SEC will consider possibly enacting after a 60-day comment period. One type aims to impose market-wide sales restrictions and another instead targets particular stocks that are in rapid decline.
The two market-wide restrictions the SEC will consider include a rule similar to the old "uptick" rule and a modified uptick rule similar to Nasdaq's former bid test.
In addition, the SEC also will solicit comments on three different types of "circuit-breaker" models, which would impose various restrictions on short sales for the remainder of a trading session if a particular security declined by 10%.
If a circuit breaker is triggered, then traders could be subject to either an uptick restriction, a bid test restriction, or an outright short-selling ban on a particular security for the rest of the day.
Tuesday, April 7, 2009
U.S. SEC to consider about 4 short sale proposals
The Securities and Exchange Commission is considering four proposals aimed at restricting short sales of stocks. The proposals include restoring the "uptick rule"; a "bid test" that would allow shorting at prices above the highest bid; and two "circuit breaker" rules, one of which would temporarily halt short sales when a stock has already fallen a certain percentage, and the other would trigger uptick or bid-test rules after a share price drops. The proposals will be discussed at a meeting Wednesday
more at
Saturday, March 14, 2009
"Uptick rule" for short sellers might make a comeback
The Securities and Exchange Commission is considering restoring the "uptick rule," which requires short sellers to sell shares at a price above the most recent trading price of the stock. The commission "may conduct a public meeting as early as next month to consider whether to formally propose reinstatement of the uptick rule, or consider other measures related to short sales," said John Nester, spokesman for the SEC.
more at
Wednesday, February 11, 2009
Short-selling ban proves to be mistake
The U.K.'s recently ended ban on short selling of financial stocks was a good test, but it is obvious the ban was a mistake, writes Paul Marshall, chairman of Marshall Wace. He says a sensible policy about disclosure would better address the relationship between financial stability and the strategy of short selling.
more at
Thursday, September 18, 2008
Capital Markets Do Not Need More Regulation, says Ex-SEC Chief Economist Richard Lindsey
Richard Lindsey, former SEC Chief Economist and director of Market Regulation, says the U.S. financial system will grow stronger from the current crisis " but he hopes the SEC will not push forward more prescriptive regulations as a knee-jerk reaction to the financial turmoil.
"As a regulator, you want to give firms enough freedom to fail, or you don't have growth, innovation or people taking chances. But you need to manage the political aspects of it. This is not a Depression, it's not a replay of 1929. It gets played up [in the media], but ultimately the [financial] system will get stronger," Lindsey told WS&T in an exclusive interview on the sidelines of the Actimize annual Client Forum in New York.
Will the regulatory hammer nevertheless fall down on the financial industry in the next few weeks? It's hard to predict, says the former SEC chief economist, since it's at least in part "a political process."
Just a few hours before we spoke, the SEC announced new restrictions on short-selling, where traders bet on prices falling. Lindsey says he hopes this wasn't a hasty early reaction to the crisis. (On Thursday, UK regulator FSA also issued restrictions on short-selling, which some say was a factor behind Wednesday's rescue takeover of HBOS, the UK's biggest home lender, by Lloyds TSB in a $21.8 billion deal.)
Lindsey suggests there will be some U.S. regulatory action in coming weeks on the insurance front. Speaking the day after the U.S. government's $85 billion bailout of AIG, he says the insurance industry may see the creation of a federal regulator (It is currently only regulated at the state level, though there has been talk for years of an optional federal charter that would give firms the choice to be regulated at a federal level instead.)
But in the capital markets, rather than new regulations, firms will probably see an increase in the number of SEC examinations, Lindsey says. "There'll be more time spent inside firms, explaining what you're going to do."
Ultimately, disclosure and transparency are better regulators than rules, Lindsey adds. "The problem with prescriptive regulations is that you have to know the answers."
If you tell someone exactly how to tie their shoe laces, the chances are that when they try to exactly follow your instructions, they won't be able to do it, says Lindsey.
"The problem with prescriptive regulations is that sometimes you get outcomes you don't want. Also, if you draw some lines, the game becomes how close people can get to the line. Flexibility works better."
Still, the current crisis does highlight a lack of accountability, Lindsey contends. Board members of financial firms must start taking more action and more responsibility. "I expect shareholders to take [legal] action."
Lindsey is certain that the financial system will recover from the current crisis. He draws comparisons with the bursting of the dot-com bubble in 2000. Today, the technology industry is booming. Likewise, the financial industry will become stronger as a result of the current turmoil, he contends.
In the meantime, Lindsey refutes industry talk about the possibility of reinstating the Glass Steagall Act, which was implemented after the Depression and in part separated investment banks from commercial banks. The Act was repealed in 1999.
"It was a very long process to remove the law once it was on the books " it was heavily fought on both sides. Congress decided to repeal it," Lindsey said. "And nothing that happened is a result of the repeal of the Glass Steagall Act. The problem has been the investment banks, not commercial banks."
Tuesday, April 29, 2008
Uptick rule
The Uptick rule is a former financial regulations rule, relating to the trading of securities in the United States. The rule was eliminated by the SEC, effective July 6, 2007.
'Uptick' is the name generally given to Rule 10a-1, under the Securities Exchange Act of 1934, which states that short selling is only permitted following a trade where the traded price was higher than the previously traded price (uptick).
On the New York Stock Exchange a short sale may only be done on an uptick or a zero plus tick (which occurs when the price is the same price as the last trade, but higher than the previous different trade).
On the NASDAQ, shorting is only allowed on the bid side when the current inside bid is not lower than the previous inside bid (i.e. a downtick).
On the March 20, 2008 episode of Mad Money, Jim Cramer launched his campaign to reinstate the Uptick Rule. Citing the wild swings of the market since its elimination, Cramer pointed out that the SEC eliminated the rule during a bull market, when liquidity was not a problem. Cramer believes that, without the Uptick Rule in place, short sellers are devaluing perfectly solid stocks. As a former hedge fund manager, Cramer admitted to making millions short selling with the Uptick Rule in place. Without an impediment such as the Uptick Rule to slow down the pace of short sellers, Cramer believes it puts the market at risk for the very problems that lead to the Great Depression.
'Uptick' is the name generally given to Rule 10a-1, under the Securities Exchange Act of 1934, which states that short selling is only permitted following a trade where the traded price was higher than the previously traded price (uptick).
On the New York Stock Exchange a short sale may only be done on an uptick or a zero plus tick (which occurs when the price is the same price as the last trade, but higher than the previous different trade).
On the NASDAQ, shorting is only allowed on the bid side when the current inside bid is not lower than the previous inside bid (i.e. a downtick).
On the March 20, 2008 episode of Mad Money, Jim Cramer launched his campaign to reinstate the Uptick Rule. Citing the wild swings of the market since its elimination, Cramer pointed out that the SEC eliminated the rule during a bull market, when liquidity was not a problem. Cramer believes that, without the Uptick Rule in place, short sellers are devaluing perfectly solid stocks. As a former hedge fund manager, Cramer admitted to making millions short selling with the Uptick Rule in place. Without an impediment such as the Uptick Rule to slow down the pace of short sellers, Cramer believes it puts the market at risk for the very problems that lead to the Great Depression.
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