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Friday, September 19, 2008

Short selling comes under scrutiny

TSX closed up 848 points and it look's like short selling is going to be severely regulated and perhaps banned in some circumstances.

Great news all around. Short selling should have been banned long ago. And there are other financial instruments that could do with closer scrutiny.

5 comments — This is a moderated blog and comments will appear when approved. Please don’t resubmit if your comment doesn’t appear immediately, and please do not post material that is obscene, harassing, defamatory, or otherwise objectionable.

  1. It should not be the business of government what financial contracts one person engages in with another. Even putting individual freedom considerations aside, speculation serves a vital function in any market. It allows prices to adjust (and, indeed, *find*) their equilibrium price faster than would otherwise be the case! Perhaps the government should simply mandate that prices never move? That would solve all of this "volatility problem", right? ... sounds like Trudeau-era wage and price controls to me... keep government out of the market!

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  2. There is nothing wrong with shorting a stock. Traders short stocks that they believe are overvalued. This reduces the chances of the type of ridiculous valuations that were placed on the dotcoms during the tech boom. On the other hand, when markets start falling, short sellers start buying to cover their positions and lock in their profits. This reduces the fall of the stock prices. Eliminating short selling will increase the volatility of the markets not reduce it.

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  3. Short selling does nothing positive period, and regulatory bodies are recognizing that they have to fix that.

    Nobody wants price controls. Why the hyperbole? What we want is protection from those who would sell the market short.

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  4. "Short selling does nothing positive period" ... With respect, you should provide something to back that claim? I agree with the comments left by "swift".

    I might also suggest we not call it short-selling but an "agreement to sell something in the future"... So, let's not call it short-sales but "future-sales"!! (though not to be confused with "selling futures"... of course) After all, this is what a "short-sale" actually is. So, does agreeing to sell something in the future do nothing positive??

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  5. Frankly, I'm not prepared to debate this topic further. The markets in the US have spoken far more eloquently than I.

    But don't let me discourage the rest of you from engaging in further debate.

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