Global Short Selling Task Force Formed

Yesterday the International Organization of Securities Commissions (IOSCO) Technical Committee had a global teleconference that was convened by SEC Chairman Christopher Cox. 

The outcome of the call is that three Technical Committee Task Forces will be formed and investigate three different issues:

The Short Selling Task Force will examine gaps in the regulatory approaches to naked short selling. 

The Task Force on Unregulated Financial Markets and Products will look at ways to introduce greater transparency and oversight to unregulated market segments.

The third group is the Unregulated Financial Entities Task Force.  IT will examine issues surrounding unregulated entities such as hedge funds.

The Task Forces will present their reports at the next Technical Committee meeting in February 2009 and to the next G-20 summit in spring 2009.

As regular readers will know, I have been opposed to the huge intrusions on the markets that governments around the world have made into the financial communities.  In my opinion these have typically been hastily implemented and ill-considered. 

However, I understand the need and desire for governments to act quickly and be seen to take action.  I have contrasted the actions of the SEC which implemented short selling restrictions for a relatively short period of time as a cushion for markets to normalize against the actions of the FSA that started off with a ban that went well into 2009. 

We subsequently had an announcement from Gordo Boom-Boom-No-Bust-Well-Maybe-There-Will-Be-But-Nothing-To-Do-With-ME Brown that new short selling rules would come into effect before the short selling restrictions expired.  That was before there was any analysis of the impact of the restrictions.  It is shocking, but not surprising that our politicos act before thinking. 

It seems to me that this new initiative is a sensible and reasoned approach to some very important issues that face the financial community.  In the SEC statement they added the comment introducing the Short Selling Task Force:  “In this connection, the Task Force will also examine how to minimize adverse impacts on legitimate securities lending, hedging and other types of transactions that are critical to capital formation and to reducing market volatility.”  The Short Selling Task Force will be under the leadership of the Securities and Futures Commission of Hong Kong.

Regulators have a responsibility to take reasoned and necessary actions to protect markets, investors and societies as a whole.  They are ill-equipped and ill-advised to act spontaneously and without investigation, discussion, debate and analysis.   Yesterday’s announcements herald the right approach, and bode well for a sensible outcome.  Crucially it is also globally coordinated.