标题: Naked fear [打印本页] 作者: tauringhuang. 时间: 2008-7-25 21:56 标题: Naked fear Jul 24th 2008
From The Economist print edition
Regulators have yet to justify their restrictions on short sales
Illustration by Claudio MunozIF BANK bosses have slept at all in recent months, their dreams have probably been unhappy ones. Quite a few of them will have featured nightmarish beings known as short-sellers. These ghouls sell shares they do not own—usually borrowed stock, which they sell in the hope of buying it back at a lower price. Many of them have been betting vocally, and successfully, that bank shares will fall. Now financial regulators in both America and Britain are doing their best to make bankers’ waking and sleeping hours a little less troubled, by imposing restrictions on short-selling. They should have left bankers to toss and turn a little longer.
This month America’s Securities and Exchange Commission (SEC) banned “naked” shorting—the sale of stock that investors do not yet have in their possession—of the American-listed shares of 17 investment banks as well as of the country’s mortgage giants, Fannie Mae and Freddie Mac. Last month Britain’s Financial Services Authority (FSA) introduced a new disclosure regime for short positions in companies that are selling new shares. Both announcements bore a whiff of panic: they were made during steep falls in bank shares and the fine print was tidied up afterwards. Both were accompanied by the rattling of regulatory sabres. The FSA growled that “market abuse” could explain the “severe volatility” of shares. The SEC thundered that “false rumours can lead to a loss of confidence”. It has reportedly fired off more than 50 subpoenas, largely to hedge funds.
Spreading false rumours with the intention of manipulating share prices is to be deplored. Indeed, it is usually illegal. If either regulator has evidence that this explains the fall in banks’ share prices, they should bring the culprits to book. It may be that the SEC’s flurry of subpoenas turns up something substantial. But neither of the watchdogs has produced such evidence so far.
Naked shorting too can be a cause for concern. It can result in failed trades if investors sell shares without properly checking that they will be able to obtain them before their trade settles. This can sometimes lead to disorderly markets. But the SEC already has rules against this as well—although some argue they could be enforced better. It also has tests for levels of botched trades in any individual stock, which trigger its intervention. However, these tests were met for only one of the 19 institutions the SEC has leapt to protect. Indeed, the commission’s chairman has said that “unbridled” naked short-selling of financial stocks has “not occurred”. The SEC has also shown less enthusiasm for policing trading in other distressed industries, such as carmaking, where short-sellers have been much more active than they have in banking.
The Selective Enforcement Commission
The sense of selective enforcement, combined with regulators’ dark mutterings about short-sellers of financial stocks, explains the widespread suspicion in the markets that both regulators acted in order to prop up bank shares. After all, as well as policing stockmarkets, the SEC and the FSA are responsible for supervising the capital positions of these institutions (although the SEC does not oversee the solvency of Fannie and Freddie). More failures on their watch would be embarrassing.
If this suspicion is accurate, it is unfair that regulators should take aim at short-sellers. Although overall short positions in banks have risen, they have not overwhelmed other trading. After the collapses of Bear Stearns and Northern Rock it is entirely legitimate for investors to debate other banks’ vulnerabilities—and to back their opinions with money. Indeed, prominent short-sellers have played an important role in exposing the poor condition of some companies, often in the face of intense hostility from management. There is no guarantee that the regulators’ actions will even work beyond the very short term. On July 21st, a month after the FSA intervened, the shares in HBOS, Britain’s biggest mortgage lender, languished below the price at which the bank was trying to sell new equity, forcing it to rely on its underwriters.
Some may say that the rules should still be bent to prop up bank shares, because banks rely on confidence and their failure causes systemic damage. But lenders now have generous privileges to borrow from central banks; these should prevent runs on solvent banks. Fannie and Freddie now have near-explicit state guarantees. Shareholders neither need nor deserve any more privileges. Attempting to distort share prices away from their market level is not a legitimate activity for traders. It is no business of regulators either.