UK+Ireland ban short selling!

[cyberianpan]

Guardian
The government tonight stunned the City when it banned short selling of bank shares by speculators hours after a pledge by Gordon Brown to tackle the deepening global credit crunch with a "clean-up" of the financial markets.

FT
The ban will remain in force until January 16, 2009, when the FSA plans to publish a comprehensive review of short-selling rules.

News of the ban comes amid growing political backlash against short-selling, which has been blamed for exacerbating the woes of the country’s banks, and for contributing to the crisis of confidence in some of the country’s largest financial institutions.
RTE
The Financial Regulator has banned short-selling in the four big Irish financial shares.

The ban was effective from midnight last night and follows a similar lead from the equivalent body in the UK.

It applies to AIB Group, Bank of Ireland, Anglo Irish Bank and Irish Life & Permanent.

Fair enough that in the US they are considering banning naked shorting but banning short selling ?

That's moaning and saying "share prices are going down too much, lets try to stop the markets" .... and naming January as time to lift the ban ...that's admitting serious market failure ... and banning it may only make things worse as it will mean less liquidity in the market....




cYp

[ballot stuffer]

Short selling in all its forms is useful in producing liquidity in stocks.

The simple facts are, if there was nothing wrong these stocks they would not be sold short to the extent they are now.

[Wicket]

I guess they are shutting the gate after the horse has bolted - but with many more horses inside.

Problem is we know their plan is to unlock the gate again in the future.

[ballot stuffer]

The only difference between unfounded speculative rumors causing increases in stock prices and unfounded speculative rumors causing decreases in stock price is that rich and powerful people loose money in the second option!

[grassroots]

An elegant little solution. Why should owners of stocks such as big State Pension funds ie Calpers lend their stock to hedge funds who then sell the shares and devalue the assets of the fund?

[Wicket]

But the problem is the solution is only short term - til Jan 09. Better title for thread would be UK postpones short selling.

[grassroots]

We shall see. What are shorts going to do now? Look at Wachovia today -up 58% for a clue. The short positions on the big tw Irish banks are humungous. Tomorrow should be interesting.

[Wicket]

I assume we know what'll happen tomorrow, it's what will happen in January that'll be interesting

[michael1965]

Guardian
The government tonight stunned the City when it banned short selling of bank shares by speculators hours after a pledge by Gordon Brown to tackle the deepening global credit crunch with a "clean-up" of the financial markets.

FT
The ban will remain in force until January 16, 2009, when the FSA plans to publish a comprehensive review of short-selling rules.

News of the ban comes amid growing political backlash against short-selling, which has been blamed for exacerbating the woes of the country’s banks, and for contributing to the crisis of confidence in some of the country’s largest financial institutions.

Fair enough that in the US they are considering banning naked shorting but banning short selling ?

That's moaning and saying "share prices are going down too much, lets try to stop the markets" .... and naming January as time to lift the ban ...that's admitting serious market failure ... and banning it may only make things worse as it will mean less liquidity in the market....

cYp

Partly true. But the big problem with short selling is how vulnerable it is to self-fulfilling prophecies, which have nothing to do with the actual fundamentals. For instance, a lot of companies don't allow their employees to engage in short selling of the company's stock, for the reason that employees are in a position to sabotage their own employer by doing stupid, illegal or dangerous things. The same thing applies with short selling in general. Spreading malicious rumours about a company, by third parties, has the same effect, and tends to make the prophecy come true.

[cyberianpan]

An elegant little solution. Why should owners of stocks such as big State Pension funds ie Calpers lend their stock to hedge funds who then sell the shares and devalue the assets of the fund?

The flipside is that if everyone takes a long position and say folks decide to sit on 90% of the equity of a company then only 10% is available for short term selling - so poor liquidity and people don't know the true value of their assets. Not a good situation for anyone.

At least if you lend on some stock you can get a pretty decent interest rate on it.

cYp