Short selling ban goes international

by David Masters

Story link: Short selling ban goes international

Last Thursday’s ban on short selling UK stocks by the Financial Services Authority (FSA) has spread around the world, stabilising financial markets, but leaving options executives furious.

On Friday, the US Securities and Exchange Commission (SEC) was the first to follow the FSA’s lead, banning short selling for 10 days.

Over the weekend the SEC was joined by authorities in Australia, Taiwan and the Netherlands.

Short selling is a bet by investors that stocks will decline. Selling stocks whilst share prices are falling, short sellers then re-purchase the shares when they have hit rock bottom, pocketing the difference.

Christopher Cox, the SEC’s chairman, said the temporary ban would help restore equilibrium to the markets.

In a statement, SEC added that ‘unbridled’ short selling was contributing to a decline in confidence in the market, causing share prices to plummet.

Investors have welcomed the ban, which will help to stabilise share prices.

However, hedge fund managers, who profit from short selling, have reacted with dismay.

William Brodsky, CEO of the Chicago Board Options Exchange, blasted the ban as ‘draconian’ and added that it will remove liquidity from the marketplace.

Wayne Luthringshausen, chairman and CEO of The Options Clearing Corporation, said he was sympathetic with the SEC’s attempt to restore confidence in the marketplace, but added that the ban is ‘too restrictive’.