Short Selling Bans Imposed in UK and USA

In response to the recent unprecedented volatility in the financial markets, the US Securities and Exchange Commission (SEC) and the UK Financial Services Authority (FSA) have both imposed temporary bans on the short selling of financial stocks.

For those not in the know, short selling is the act of selling stock one does not own, with the aim of buying it back at a lower price and profiting from the difference. This strategy is used to make money in a falling market, or when one expects a fall in the near future.

Large hedge funds have been blamed for abusing short selling to manipulate the market and contributing to the deterioration of world stock prices. 

The US ban applies to 799 stocks, and will initially last for 10 days, but may be extended. The UK ban applies to 32 companies and will last until the beginning of January 2009.

In Australia, our own so-called regulator ASIC has stated that we already have restrictions on short selling. Many people would consider this laughable.

I have an article that’s been sitting on the back-burner concerning my opinion of the role of short selling in the world stockmarket turmoil. It will follow next.

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