Regulated Short Selling Will Fail Dismally

Bursa will not like to hear me on this. They'd probably think I have a deep vendetta against them. First, Bursa is too greedy to try and act as the Central Lending Agency. Brokers, custodians and investors all have to go through Bursa to things done. This creates an unecessary layer which adds to cost.

Secondly, Bursa failed to appreciate why an OTC market would have been better. Not all lenders want to lend shares at 2%, some may only lend at 5% or even 10%. Take Google shares for example, at US$400, probably a lot of people would want to short it, hence the lenders could actually ask for a higher rate before lending out. A transparent and free-market OTC makes for real activity and better returns for bot sides. I am not sure if Bursa even have the mechanism to change the lending rates?? (..what, change the rates... every now and then ... so much work la...).

Thirdly, too much red tape, inteference, scrutiny... blah blah... Having said that, as long as people can make big money, they can withstand the trouble to invest, if they can make 30% in a month in Timbuktu exchange, you can betcha they will try to get there. But it probably won't happen in Bursa's RSS - limited shares for shorting, do you think there will be 1 million of a company's shares for shorting? Chances are, it will be sporadic and insignificant, which will turn people off. That is why an OTC would have stood a better chance to survive. Imagine the current scenario, with Genting jumping on the news of Harrah's withdrawal, I think its a good time to short Genting shares, but no one wants to lend at 2%, so I put up a willingness to borrow 50,000 shares at 4%, I am sure someone will bite.

The failure to allow for a free flowing capital markets. The shallow opinion of thinking that by being the Central Lending Agency, somehow that could prevent disasters. You mean, the 1997 implosion was due to short sellers??? Please grow up, that shows how naive and poorly educated and uninvestment-savvy the current crop of people in unthinkably high positions are... sigh... You cannot molly-coddle a capital market, it has to be relatively laissez-faire ... look at global best practices... please...

p/s btw, I totally agree there should be short selling, just do it better ... man...

Comments

sopskysalat said…
Well Dali,

What really make you so bearish about Genting? It may stand a really good chance of winning the IR in Sentosa. Yes, the investment is huge, but the news may be good to nudge it higher with Merril Lynch being one of the sole house to push the stock.
zentrader said…
Dali,

With your writeup I can understand the big picture better. I agree 100% to your view. It is like BNM to become the central lending agency for all the borrowed money instead of just setting the overnight key rate ...

zen