Community
I have been debating the importance of short selling to markets and investors over the past few days and next year will be creating a debate for the Post Trade Forum on short selling. However, what has amazed me is the almost complete lack of understanding there is around about the importance of short selling. It has certainly become emotive.
The financial crisis has caused short selling to get a very bad press, but is this justified? When markets go so badly wrong it is understandable that people want to apportion blame. Short selling is a difficult concept for many people, even experienced brokers and profesional investing firms can be confused by the importance and value of short selling.
New financial products developed to facilitate previously non-allowed firms and people to take short positions have enabled short selling to be missused and corrupted the reality of how important this facility is to any market.
Politicians now see the banning of short selling as an important political tool to manipulate markets. This is as bad as firms or wealthy investors trying to manipulate the markets through OTC and other shortening products.
There are regulations that can be used to flush out and prosecute market manipulators without the recourse to banning.
My contention is that short selling supplies market liquidity which is an invaluable asset to investors needing to buy or sell. An order run market without short selling would increase the price of buying and decrease the price for a sale. Investors and consumers would lose massively.
Now there are firms and people that try and manipulate markets for their own gain but these should be prosecuted under existing rules. So no short selling ban is necessary. I would like to see short sellers be regulated centrally by the central banks and I would like to see collateral and margining to be of higher quality and greater in cost. This alone would bring more order and control.
I am dead against politicians interfering with markets and totally against short selling bans. Let’s be more inventive in how the markets manage short selling and go after with gusto those that manipulate markets. Look out for next years Post Trade Forum on short selling
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Oleksandr Strozhemin Co-founder and CEO at Trinetix
13 August
Elaine Mullan Head of Marketing and Business Development at Corlytics
12 August
Abhinav Paliwal CEO at PayNet Systems- A Neo Banking Software Platform
Donica Venter Marketing coordinator at Traderoot
Welcome to Finextra. We use cookies to help us to deliver our services. You may change your preferences at our Cookie Centre.
Please read our Privacy Policy.