Bloomberg News

Hong Kong Doesn’t Plan to Ban Short Selling; Sale Is Normal

October 06, 2011

(Updates with brokerage comments in third paragraph.)

Oct. 6 (Bloomberg) -- Hong Kong doesn’t plan to ban short selling of securities, rejecting a request from some brokerages after the city’s benchmark index tumbled 26 percent this year.

“When markets fall, it’s not like we can stop it by just banning short selling,” K.C. Chan, Hong Kong’s secretary for financial services and treasury, told reporters today. “Shorting activities are so far relatively normal and we’re keeping a close watch.”

About $10 trillion was wiped from global equities in the third quarter on concerns that Europe’s debt crisis will worsen and the global economy will falter. Seven brokerage groups said Hong Kong, the world’s fifth-largest equity market, should consider a ban on short selling, according to Christopher Cheung, honorary chairman of the Hong Kong Securities Professionals Association.

“The government should disclose more information of short- sellers,” Cheung, also the chairman of Christfund Securities Ltd., said by telephone in Hong Kong. “Short selling recently has disturbed market operations and extraordinary measures are needed to boost investors’ confidence.”

Hong Kong’s benchmark Hang Seng Index jumped 4.3 percent as of the midday trading break today. The gauge is headed for its biggest gain in more than two years, after being closed for a holiday yesterday, amid better-than-expected U.S. economic data and optimism Europe will contain the region’s debt crisis.

‘Cost to Bear’

Short selling in Hong Kong climbed to the highest level in 12 years, with bets on declines reaching HK$12.8 billion ($1.6 billion) on Sept. 30, or 14 percent of the total value traded on Hong Kong’s stock market, according to data compiled by the city’s exchange and Societe Generale.

The HSI Volatility Index, the benchmark gauge for Hong Kong stock options, sank 10 percent to 42.87, the biggest drop since Sept. 15, indicating options traders expect a swing of 12 percent in the Hang Seng Index in the next 30 days. The gauge soared 45 percent on Aug. 9 as the city’s stocks entered a so- called bear market from its November high.

“We are an international financial center, and one of the characteristics is a liberal trading system,” Ben Kwong, chief operating officer at KGI Asia Ltd., said by telephone in Hong Kong “Funds flow in and out easily, and we have a liquid market. There is a cost we have to bear. That means volatility in the market.”

Regulators from South Korea to Europe have restricted bearish bets this year to stem market volatility. Spain and Italy extended halts on short selling of financial shares, the European Securities and Markets Authority said last week. Greece lengthened its ban until Dec. 9. South Korea said in August that it will forbid shorting until Nov. 9.

The Hong Kong stock exchange suspended short selling in HSBC Holdings Plc, Hong Kong Telecommunications Ltd. and China Telecom (Hong Kong) Ltd. on Sept. 2, 1998, after Hong Kong Clearing Co. reported millions of shares failed to be settled.

--With reporting by Kana Nishizawa and Marco Lui in Hong Kong. Editors: Tan Hwee Ann, John McCluskey.

To contact the reporters on this story: Fox Hu in Hong Kong at fhu7@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net


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