Business | Markets
Short selling ban won't fix market problems by itself
Britain's tabloids called short sellers "trader sharks", and "fat cat speculators". In the US, they were likened to "looters after a hurricane" and targeted for investigation in New York.
- AP
- Published: 23:52 September 20, 2008
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London: Britain's tabloids called short sellers "trader sharks", and "fat cat speculators". In the US, they were likened to "looters after a hurricane" and targeted for investigation in New York.
Short selling - a time-hallowed way of betting a stock will go down - definitely has an image problem after being blamed by some for contributing to the woes of Bear Stearns, Lehman Brothers, AIG, HBOS and others - especially with taxpayers on the hook for several bailouts.
While the Sun tabloid blared that the ban would "halt city turmoil", analysts say the ban will simply postpone more inevitable turmoil - unless the government also does something to relieve the mounting levels of bad debt that financial firms are battling.
"Banning short selling is just a part of a solution," said Nic Clarke, banking analyst at Charles Stanley Stockbrokers. "It doesn't stop the underlying reason for the credit crunch."
Critics complain aggressive traders such as hedge funds are ganging up and creating panic, sometimes by spreading rumours. British regulators probed rumour allegations after a sharp drop in HBOS's share price in March, but found no concerted effort to spread them.
David Buick, partner at BGC Partners brokerage firm in London, doesn't buy the claims that short trading is to blame.
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"If you were going to be picking on anyone you would pick on house builders and retail banks. The sentiment there has been rubbish and that has not been caused by short sellers."
Reprieve: Option markets
Many option participants were relieved after it was proposed that option market makers be exempted from the temporary ban on short selling of financial stocks.
The US Securities and Exchange Commission will consider an exemption for hedging by exchange and over-the-counter market makers in derivatives on the short sale ban.
- Reuters
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