SFC: More Short Selling, Please!

Apr 29 2009 | 11:55am ET

In a rare bit of backing from a major regulator, Hong Kong’s Securities and Futures Commission has come out in favor of short-selling.

The controversial practice has improved market efficiency, enhanced market depth and reduced bid-ask spreads in the Hong Kong equity market, the SFC said in a new report.

Overseas markets tightened their short-selling regulations temporarily in response to the increase in market volatility after Lehman Brothers filed for bankruptcy in September. However, SFC research shows that those restrictions did not necessarily reduce the volatility of stock prices. On the other hand, some of these measures might have reduced liquidity in the stock market.

Hong Kong’s short-selling turnover, as a percentage of total market turnover, actually declined from 8.5% from July 1 to Sept. 18 (before the short-selling ban was imposed on financial stocks in the U.S., Britain and other major markets) to 6.7% between Sept. 19 to Dec. 31, according to the report. The percentage remained relatively stable at 7.2% in the first quarter of 2009.

“Short-selling facilitates activity by professional investors and increases trading in the Hong Kong market,” said the SFC’s CEO Martin Wheatley. “Without short-selling, this additional activity would disappear. We have put in place a robust regulatory framework in Hong Kong to minimize the potential risks whilst realizing as much as possible the benefits of short selling.”


In Depth

Q&A: TCA Fund Management's Bob Press on Small-Cap Private Equity

Aug 25 2016 | 8:55pm ET

The emergence of private credit as a replacement for traditional bank financing...

Lifestyle

Kiawah: Island Reversal

Aug 24 2016 | 9:59pm ET

Looking for real estate investments but the typical real estate fare isn’t cutting...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...