The restrictions on short selling of U.S. listed financial equities initiated by the SEC in September were in tune with similar bans in Europe and Australia, while China took a different route.
On Sept. 18, just prior to the announcement of the SEC ban that ended on Oct. 8, the UK Financial Services Authority prohibited short positions in UK financial sector companies until January 2009, with an exemption for market makers. The rule requires daily disclosure of all net short positions in excess of 0.25% of the ordinary share capital. German regulator BaFin instituted a ban on 11 financial sector companies, and Ireland prohibited short selling on four Irish banks.
The Australian Securities and Investments Commission (ASIC) temporarily banned both naked and covered short selling, with an exemption for market makers. ASIC Chairman Tony D’Aloisio said that because of the relatively small size of the Australian market, it was necessary to extend the prohibition to all stocks. “To limit the prohibition to financial stocks, as has been done in the UK, could subject our other stocks to unwarranted attack,” he said.
Russia temporarily lifted its ban on short selling on Sept. 26 before reinstating the ban on Sept. 30.
China, meanwhile, went in the opposite direction of the U.S. and Europe. On Oct. 5, the China Securities Regulatory Commission said it would launch for the first time margin trading and short selling in China on a trial basis. The absence of short selling had “been one of the key complaints about the Chinese markets,” says Joseph Meuse, managing director at Belmont Partners. “It’s an impressive move.”
Meuse says that China’s timing on this rule was no coincidence. “The Chinese realize that their market is not seen at the same level as the market in the States or in London. It was a very calculated move,” he says.