Thursday, Sep 18, 2008
FSA bans the selling short socks (or something similar)
Moneymarketing: FSA bans short-selling of financial stocks
The Financial Services Authority has banned the active creation or increase in net short positions in listed financial companies from midnight tonight. The FSA says the provisions will remain in force until January 16, 2009 but will be reviewed after 30 days.
The regulator is also ramping up disclosure requirements forcing hedge funds shorting financial companies to disclose daily all net short positions in excess of 0.25 per cent of the ordinary share capital of the relevant companies held at market close on the previous working day. Disclosure of positions held at close on Friday, September 19 will also be required on Tuesday, September 23.
Posted by jack c @ 07:17 PM (835 views) Add Comment
14 Comments
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1. alan said...
Many people have been asking for this for around a year now. Pity it took so long for any action at all.
2. renting2 said...
Now where's that horse?
3. icarus said...
So somebody big discloses a short position and that acts as an advert for others to short the stock. Then there will be those who are hedging a long position by shorting. The long position isn't disclosed but the short position is disclosed. This makes it look as though there is more shorting than there actually is and it's another reason for the herd to start shorting the stock.
No, I think they should just publicly cane the shorters - without their shorts on.
4. denzil said...
Long overdue! It's been so blatantly obvious what has been going on for ages.
5. last_days_of_disco said...
This is going to have weird unintended consequences. I am sure people can come up with a couple right off the bat.
The reason financial companies are able to be shorted is that they are exposed. And this won't save them. They have been swimming
with no shorts on and now its obvious to everyone. So many banks are insolvent if you had to value their assets (mostly mortgage
backed securities or commercial debt or anything else for that matter that isn't hard cash). Basically they are insolvent but the lying and
decpetion is to try and buy time by hiding the reality.
One radical way of fixing the hedge fund problem is to go into several areas of London (where they all operate from) and consolidate the lot of them (hence reducing all the counter party risk). Then, consolidate all their assets, look at their trades with each other, cancel them all out, and wind them down. And bring derivatives firmly under control and never let them grow out of control again. But hey, they might buy their own private army with a spare billion they have under a desk or lying behind a door and then, what can you do?
6. shipbuilder said...
5. last_days_of_disco said...
"One radical way of fixing the hedge fund problem is to go into several areas of London (where they all operate from) and consolidate the lot of them (hence reducing all the counter party risk). Then, consolidate all their assets, look at their trades with each other, cancel them all out, and wind them down. And bring derivatives firmly under control and never let them grow out of control again. But hey, they might buy their own private army with a spare billion they have under a desk or lying behind a door and then, what can you do?"
Last_days, ya big leftie.
7. last_days_of_disco said...
Hahaha, I said it was *radical*.
8. mountain goat said...
Nonsense! You crippled the banks with your house price Ponzi scheme, now it's shark feeding time.
9. mark wadsworth said...
LDOD, I did suggest consolidating them all to eliminate counter party risk yesterday, so I beat you to it.
And what's wrong with shorting anyway? There are so many ways of doing it, you can't make it illegal. What about 'contracts for differences'? There's nothing to stop me entering into a private agreement with anybody I like that we enter into a spread bet - for every 1p that a certain share rises, I give the other party 1p (x a large number) and for every 1p it falls, the counter party gives me 1p (x a large number).
Can we affect the outcome of a football match by betting on the outcome? No, of course not. So what's wrong with one person betting that a share will go up (the stock lender) and the other person betting it will go down (the short seller)? If a company were fundamentally sound, you could short it as much as you liked, it would still go up and you'd lose your shirt.
Here endeth today's lesson.
10. Bystander said...
"If a company were fundamentally sound, you could short it as much as you liked, it would still go up and you'd lose your shirt."@MW@9
.....but the market has the jitters and even the most robust institution is open to rumour and manipulation at times like these. The short sellers have been playing the fear cards and undermining the stability of sound financial institutions as well as unsound ones. Speculation drove up the price of oil and gold and it has driven down the price of shares of big and small financials. Greed is the overiding emotion of these traders and as such, anything goes. This is why the FSA's declaration is long, long overdue and infact the whole financial/ investment/ speculative markets need to be taken in hand and cleaned up, but that won't happen as there are too many people in positions of influence who want the greed/ instability to continue.
11. bystander said...
"If a company were fundamentally sound, you could short it as much as you liked, it would still go up and you'd lose your shirt."@MW@9
.....but the market has the jitters and even the most robust institution is open to rumour and manipulation at times like these. The short sellers have been playing the fear cards and undermining the stability of sound financial institutions as well as unsound ones. Speculation drove up the price of oil and gold and it has driven down the price of shares of big and small financials. Greed is the overiding emotion of these traders and as such, anything goes. This is why the FSA's declaration is long, long overdue and infact the whole financial/ investment/ speculative markets need to be taken in hand and cleaned up, but that won't happen as there are too many people in positions of influence who want the greed/ instability to continue.
12. denzil said...
Mark Wadsworth said:
"If a company were fundamentally sound, you could short it as much as you liked, it would still go up and you'd lose your shirt."
Agreed! What if I employed some well-placed types to spread a rumour that the company was not fundamentally sound. If I could get people to buy into that (or out as the case may be), I could then pocket on the way down and then I'll pocket on the way back up once people realise that it actually was sound all along.
13. dohousescrashinthewoods said...
A decent ecosystem needs parasites and destructive factors to help weed out weaker individuals when a population gets too large. It's how you maintain order. If you spend all your time trying to eradicate pathogens, you end up encouraging the development of superbugs, like MRSA. Quite simply, too much Milton and you'll end up ill.
So, if I haven't thoroughly mixed the metaphors, my point is that short selling is good for the market and stifling it crates further distortion. If the market weren't already so out of whack, there would be no basis for this behaviour to flourish Yes it's destructive, but even if all fell over, new firms will spring up to take the slack.
The real question is the ooposite - given that short selling is rife, what does that tell you about the state of the market?
14. Topher Bear said...
So, its alright for people to make money on the way up, but not to make money on the way down.
Now they worry about people jumping on a bandwagon...shame they didn't work out the dangers of exagerated movements before the boom.
With prices going up, its all about finding a greater fool to buy the shares off you at a higher price than you paid. With prices going down, its all about finding a greater fool to buy the shares off you at a lower price!
In normal share dealing, someone buys a share off someone who is selling, then at a later date sells shares to someone who wishes to buy. In short selling, someone sells shares to someone who is buying and at a later date MUST buy shares off someone who is selling. Since short sellers HAVE to buy at some point, this creates a floor to the falls, thus we get a more ragged up and down pricing. Without shorts, wheres the floor to the sales? This could well result in a situation that when share prices start falling they end up falling through the floor, with nothing to stop them!
But hey, whadda I know, I only saw the dangers of this situation several years ago, i'm no expert!