From the article:
"The Securities and Exchange Commission and the U.K.'s Financial Services Authority clamped down on the practice, which they blamed for the declines of financial stocks, late last week."Short selling is why stocks go down? Is buying stocks why they go up? Is it scary that this is the reasoning of the regulatory agency?
I can't remember this from my derivatives class, Tom will have to fill in the details, but can't you manufacture a short-sell in a manner that doesn't involve short selling? Or is that only with options?
Hat tip: TPS Legal Expert and Protoss aficionado Dana Johnson
1 comment:
You can create a synthetic short using options, but the problem is that the person who takes the other side of the long put (typically an options market maker) hedges his risk by going short the underlying -- which they can't do anymore if short selling is prohibited. So you can expect to see a huge drop in the liquidity in the options market, and thus a higher cost for synthetic short positions.
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