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News In Brief

Shooting the shorts (again)

Paddy Hirsch Aug 12, 2011

You think the markets are going wild in the US? Things are so bad in Turkey, Greece and South Korea that regulators have curbed short sales.

In a short sale, an investor borrows a security and sells it, expecting to profit from a decline by repurchasing it later at a lower price. She then returns the shares to the lender and pockets the difference.

Bloomberg reported that Turkey curbed short sellers by insisting they provide 70 percent of the value of the borrowed shares as collateral. That’s up from 50 percent. The idea is to make it more expensive, and thus more difficult to engage in short sales. The Turkish bourse is hoping that’ll ease some of the volatility in the market.

In a naked short sale, a speculator places the sell order without obtaining the underlying securities. Turkey says it will penalize naked shorts, as they’re called.

Will Duff Gordon, London-based senior research analyst at Data Explorers told Bloomberg that restrictions on short sales are unlikely to provide a long- term boost to markets when “long-only” investors are dumping their holdings.

“Last time, banning short selling didn’t stop the markets from falling,” Duff Gordon said. “You can’t stop asset owners selling their shares, or retail investors panicking. You’re only covering one group of traders, which may have not been that active anyway.”

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