Hong Kong regulators deny market declines a result of short selling
09 October 2011 Hong Kong
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There is no indication that recent declines in the Hong Kong stock market have been caused by short selling activities, says China's capital markets regulator, the Securities and Futures Commission (SFC).
“Short selling is a trading and hedging tool commonly and legitimately used by a range of market participants. It is not unusual to see the level of short selling increase significantly in the market environment we have been experiencing in recent months,” says Ashley Alder, CEO of SFC.
Stock markets around the world have seen significant downward adjustments and increased volatility in recent months against the background of an uncertain global economic outlook and the eurozone sovereign debt crisis, however Alder did note that the SFC will not hesitate to take immediate action to deter any manipulative or abusive short selling practices.
“Extreme volatility has reflected global concerns centred on an evolving financial crisis which started three years ago, and which is now centred on sovereigns and exposed banks, particularly in the eurozone,” he added.
In relation to the market rally in the last two days, Alder pointed out that markets are currently "very sentiment driven".
“We can see this from the market rebound following reports of greater political resolve in Europe to address the debt crisis, and news of further market stimulus by the Bank of England and the extension of unlimited liquidity by the European Central Bank to Eurozone banks,” Alder notes.
He reiterated that Hong Kong has a robust short selling regulatory regime that is more stringent than most overseas markets, and that the SFC will be introducing legislation shortly to implement a short position reporting regime to further enhance the transparency of short selling activities.
Only covered short sales are permitted in Hong Kong and both the seller and broker are required to confirm that the short selling orders were covered before executing the transaction while short selling orders must be flagged when submitting to the Stock Exchange of Hong Kong (SEHK) for execution.
In addition, only liquid stocks are permitted by the SEHK for short selling and the uptick rule imposed by the SEHK requires that a short sale cannot be made below the best current ask price. Furthermore, the SEHK requires compulsory buy-in for failed trades if sellers cannot deliver the stocks for settlement.
“Short selling is a trading and hedging tool commonly and legitimately used by a range of market participants. It is not unusual to see the level of short selling increase significantly in the market environment we have been experiencing in recent months,” says Ashley Alder, CEO of SFC.
Stock markets around the world have seen significant downward adjustments and increased volatility in recent months against the background of an uncertain global economic outlook and the eurozone sovereign debt crisis, however Alder did note that the SFC will not hesitate to take immediate action to deter any manipulative or abusive short selling practices.
“Extreme volatility has reflected global concerns centred on an evolving financial crisis which started three years ago, and which is now centred on sovereigns and exposed banks, particularly in the eurozone,” he added.
In relation to the market rally in the last two days, Alder pointed out that markets are currently "very sentiment driven".
“We can see this from the market rebound following reports of greater political resolve in Europe to address the debt crisis, and news of further market stimulus by the Bank of England and the extension of unlimited liquidity by the European Central Bank to Eurozone banks,” Alder notes.
He reiterated that Hong Kong has a robust short selling regulatory regime that is more stringent than most overseas markets, and that the SFC will be introducing legislation shortly to implement a short position reporting regime to further enhance the transparency of short selling activities.
Only covered short sales are permitted in Hong Kong and both the seller and broker are required to confirm that the short selling orders were covered before executing the transaction while short selling orders must be flagged when submitting to the Stock Exchange of Hong Kong (SEHK) for execution.
In addition, only liquid stocks are permitted by the SEHK for short selling and the uptick rule imposed by the SEHK requires that a short sale cannot be made below the best current ask price. Furthermore, the SEHK requires compulsory buy-in for failed trades if sellers cannot deliver the stocks for settlement.
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