יום שני, 8 באוגוסט 2011

Greece bans shortselling

Greece has decided to ban short-selling for a period of two months. Short selling can be described as a kind of reverse equity trading method. A method  in which a person who believes an equity's price is about to fall, borrows the equity, sells it at its current  high price, and later buys it back at a lower price to be returned to the lender.

It is claimed that short selling are important for the stock market, as they assist in the discovery of  fraudulent accounting,  management  problems and other issues in the businesses behind the equities. It is also claimed that short-selling is a counter-weight to the over-optimism Bullish markets tend to adopt.

And yet, I personally believe markets can operate very will on the basic buy & sell actions, without the more complicated options. Suspicious stock can just be avoided, and eventually, in a free market, their price will fall. Maybe not as quickly as in a stock market that supports the short-selling tool, but inevitably, the market will catch on, assuming it is a stock market of rational investors who study their stocks diligently.  
The bad side of short-selling is clear: at times of great anxieties, they make massive sellouts into huge market crushes.

This is why I'm very happy about the step Greece has taken, and I do hope other stock markets will follow suit, and at least limit this practice to the upswings of the markets, at least as long as anxieties and not rationale rule the markets.

[update, 12/8/2011: The Guardian reports that "France, Italy, Spain and Belgium imposed bans on the short-selling of financial stocks for 15 days after a week of turmoil in European financial markets. Britain, the Netherlands and Austria refused to follow suit, while Germany is pushing for a Europe-wide ban on naked short-selling of stocks, government bonds and credit default swaps."
The Guardian appears to be against the ban, as is evident from the views that are referred to in the article. One would have expected the other side to be covered in the article as well, and that opinions pro-ban would have been voiced.  Reuters' report on the matter appears of a wide perspective, and adds additional info regarding this already highly complicated matter.... ]

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