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Just to try and explain the liquidity issue on short selling

Imagin you want to buy shares in a company or currency and there is no one to sell it to you because they operate a matched position. What will happen to the asset you want to buy?

Well in a bid scenario you could keep bidding higher to try and attract a seller. In which case you will pay much more than you want. This is called an illiquid market

Now the same scenario

A wholsaler will sell you shares and currency at an agreed price and supply you with the asset by borrowing it from a holder/investor

This is supplying liquidity to the market and you get the asset at the market price because its liquid

Now with short selling OTC products there are speculators that can buy this products at a small outlay providing them with huge exposures to the market. If large enough or piched at the right time it can adversly affect the market. This is not short selling and should not get mixed up with the need for liquidity.

The problem with this type of financial instrument is that its off market and billateral between large entities. It does not need a huge balance sheet and it has become unregulated through complexity and just plane bad regulators. They are not margined and collaterised to the extent that they should be. This is uncovered naked exposures but not short selling

During my research for Short Selling and why the Post Trade Forum debate has been arranged is because people do not make a distinction. Prefering to bag everything under Short Selling. The risk is that the baby and the bath water will be on the floor and we will create an expensive and illiquid market that has severe unintended consequences

So now get all the apples and pears together

Should Short Selling be banned? 

The introduction of LEI is one of the most important developments that the financial services industry should do. It has far wider benefits than just OTC as it could benefit STP but also legal obligations like Money Laundering and other crimninal activities

Although anything like this is a slow process because of the fragmented nature of FS it would be a huge fillip if it could have global regulatory backing and enforcement. Wont hold my breath though

The risks with short selling are all with the seller. They have to buy to cover the sale and if the buying price keeps going up they lose. Sky is the limit for losses on short selling and why it should only be alowed for proffesional traders with big balance sheets.

Dont get confused with Sub prime that was not short selling just lending against collateral that was not large enough or with enoth quality to people that could not repay. This was not short selling but a breakdown of valuations within the banking and others in the financial system

Quite simple really. Ban short selling and dry up liquidity. For example when the market is moving into a Bear. Investors holding shares wont be able to sell because there will be no buyers

In some countries 9mainly Far East) short selling was illegal. This prevented international investment and dried up their ecnomies. During my research for this topic it has been interesting that the further East the more moral arguments appear and ilegal comes into the argument. The further West you go and the reverse view is made. This indicates a culteral influence as well as an historic standpoint

However some of the biggest users of short selling products are from the Eastern countries. Strange 

Remember that selling short is a contracted commitment to deliver. Failure to deliver can incurr costs. The risk is that the share price increases and the sky is the limit making the short seller taking huge risks. For this reason short selling has to be covered by margin and collateral

Short selling products are where most people are confused and where the regulators need to ensure that there is good margin and collateral

Stock Markets arround the world have always operated short selling. Have you heard of Bull and Bears?

Stock markets are different to buying and selling cars or for that matter most other markets and no comparisons can really be made. You must realise that financial markets operate in a vastly different way

There needs to be more knowledge and understanding of short selling in the media and people should not be buying a message that is based on limited knowledge

The debate has attracted one MP that has been proposing a short selling ban and its a great chance to balance the argument and get more knowledge into this topic 

The problems of technology! One thing is certain there will be another outage of any of the exchanges at some time in the future. Nothing is 100% and its the speed of recovery and the ability to keep problems down to a minimum that will set exchanges apart. So no crowing by any exchange it might be you next

Totally agree that this is an awfull story.I hope it is a joke but i find it very unfunny. If this was football someone would get a red card and suspended

Although i would love to believe that technology investment by Banks will start a change towards client satisfaction and increased growth, i think in these times minds are elsewhere focussed

This all makes sense to me. Just shows what can be done with a bit of imagination and collaberation. I will not hold my breath for the UK though