Free to follow your shorts

We are coming to the end of a number of the temporary short selling bans that regulators around the world put in place amidst the market panic last summer and autumn. Many of the bans were extended beyond their initial expiry date by the authorities. In the past week Greece, South Korea and Australia have all announced the lifting of bans. Australia was the surprise here as they removed the restriction on financials a week early. Several more are due to drop at the end of May or June.

The timing seems to fit quite nicely with the upcoming 34th Annual IOSCO conference that starts 8 June in Tel Aviv. In the closed-door sessions they will be following up on their Report on the Regulation of Short Selling. An IOSCO representative recently told me that once their report is finalised in early June, the non-private comments they received would be up on their site. The World Federation of Exchanges will have their Regulation Committee meeting concurrent with the IOSCO meeting. WFE recently came out with its response that was supportive of the IOSCO recommendations.

I was speaking with a lender earlier today and we were considering where the markets and the securities lending business is going for the rest of the year. We came to the conclusion that the second quarter has been surprisingly solid with the seasonal strength buttressed by a handful of specials, most notably Citibank shares. The rest of the year remains less than clear as credit markets seem to be stabilising, and net hedge fund assets under management still declining, albeit at the slowest level for many months.

The one positive outcome I feel strongly about is that there will be a better environment for short selling. I use the word “better” advisedly. It is meant in the context of clarity and definition rather than necessarily being to the benefit of traders. We saw last year that rules imposed without consideration or discussion can have unintended consequences. The arguments will no doubt continue for some time about up-tick rules, disclosure levels and timeframes and to whom the disclosure should be made. However, it must surely be to the benefit of traders to have a clearly defined set of rules through which they can execute or adjust their strategies.