Wow, Britain Bans Short Selling of Financial Stocks; Russian Markets Still Halted;

This is unbelievable. FSA, the British regulator, just banned short selling of all financials. I have been in favour of banning naked short selling but this is a dumb move. It goes against everything good about a free market and it is going to result in unpredictable outcomes. Possible problems include liquidity completely drying up for financials, difficulty for market makers (particularly derivative players such as option sellers) in hedging, and decline in trust by investors.

In another note, the two exchanges in Russia still seem to be halted. The government is injecting liquidity into the market, as well as cutting oil taxes. This is another strategy that can easily backfire with rampant inflation in the future.

Comments

  1. AnonymousSeptember 18, 2008 at 2:33 PM

    While this measure seems an unproductive restriction of freedom to me, I fail to see how this ban would dry up liquidity. It is not as if selling has been banned (like the russians did!)

    ReplyDelete

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