Muted response to brokers' call for short-sales ban
Seven brokerage bodies yesterday lobbied the government to follow the example of some European and Asian markets and ban short selling, citing the benchmark Hang Seng Index's more than 25 per cent loss over the past two months.
Investors who short-sell stocks are betting on declines in securities. Short sellers usually borrow shares, sell them, and then buy them back at a lower price, repaying the loan and pocketing the price difference.
Christopher Cheung Wah-fung, permanent honorary chairman of the Hong Kong Securities Professionals Association, and other brokers bodies' expressed their views in a meeting with Permanent Secretary for Financial Services and the Treasury Au King-chi yesterday.
The government said it was planning no immediate action but agreed to monitor short-sellers to ensure they follow the rules. Some overseas markets allow the sales without borrowing the stocks, known as naked short selling.
Cheung said that in the past two months an average of 10 per cent of stock market turnover consisted of short-selling orders and derivative trades betting on a market fall.
'Big investment banks and hedge funds use short selling and derivatives to gain from a falling market, which is unfair to retail investors who have little knowledge and capability in this area of trading,' Cheung said.
'We are calling on the government to follow the example of France, Italy and Korea to ban or restrict short selling or to make this type of trade more transparent to protect the interests of retail investors.'
In August, South Korea banned all equity short selling for three months after its benchmark index fell by 17 per cent in six days. France, Italy, Spain and Belgium have also temporarily banned short selling of bank and other financial company stocks.
'Hong Kong is an international market and we should catch up with these international trends,' Cheung said.
Brian Fung Wei-lung, chairman of the Hong Kong Securities Association, said the government should at least boost transparency by disclosing whether the Mandatory Provident Fund and retirement fund assets had lent out securities.
'Employees with MPF accounts benefit from a rising stock market because that boosts their pension assets. They have the right to know if their pension assets are being borrowed by short sellers to push the market lower,' Fung said.
'We also want to know if the borrowing fees benefit MPF employees or if they only go into the pockets of MPF trustees.'
Professor Stephen Cheung Yan-leung of Baptist University said studies showed that bans on short selling were not effective.
'The US and Europe had a similar ban on shorting bank stocks during the financial crisis in 2008 but a study showed that the ban, which was intended to reduce volatility and take some pressure off the markets, didn't work well as the market still fell,' Cheung said. 'Even after the recent ban in August, we have seen the prices of European bank stocks continuing to plunge as markets are worried about their exposure to European government debt. So, even if we ban short sellers, there is little to boost share prices unless the market bottoms out.'
Yesterday's turnover, in Hong Kong dollars, on the Hang Seng Index, down 1.42 per cent from Monday's total of HK$76.37 billion