Spain bans short selling for a month
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Rodrigo Orihuela brings some much welcome good news from Spain:
Spain’s securities regulator banned short selling for a month in an attempt to shield local stocks from the volatility caused by the coronavirus outbreak.
Bloomberg
Makes sense that they don’t want opportunists trying to make money off this emergency. When that happens, you have people with perverse incentives to stroke panic and spread fear, at a time when people are already very fearful.
The ban starts March 17 and can be extended for additional periods no exceeding three months.
Bloomberg
Mark your calendars for St. Patrick’s Day. Italy and France had also enacted a one day ban on March 13:
Spain, as well as Italy, had already ordered a one day ban on short selling in the March 13 sessions. Spain’s benchmark Ibex index dropped to its lowest intra-day level since March 2003 during Monday’s session, before closing at the lowest since 2012.
Bloomberg
Should the United States follow the lead of securities regulators in Europe? Or is short selling important for healthy market function? Let us know what you think.
Read the full story on Bloomberg
Great to see you back! Definitely US should follow this example of banning short selling. That would be awesome!
Short-selling creates a perverse incentive structure that rewards disinformation, illogical or fallacious arguments, and sensationalism in media (Twitter, blogs, news sites, cable news, etc). Keeping companies honest or fairly valued by shorting their stock is propagandist cover, an honest person with solid media literacy skills willing to dig deeper should see this. Making casino-like bets that a company’s stock will go down and then later having flat or downward movement proves nothing about the value (financially and otherwise) of that company and provides no value itself in the economy. If you believe in a company invest in it, if you don’t then don’t invest and put your money elsewhere. It should be as simple as that. Not allowing shorting stocks doesn’t end criticism of a company nor should it, what that does is remove the financial incentive behind the criticism and should ultimately lead to more good arguments made hopefully in good faith. Are there going to be some people or institutions who don’t believe in a company, yet buy the stock and then attempt to pump it up with their own bad-faith media creations? Yes of course there will be those, but allowing short-selling is not a solution to that either. Short-selling just throws gasoline on that fire and tries to capitalize on it and the wild swings that can be created. Two wrongs don’t make a right. Also the people pumping and dumping are often the same people who later short and distort. I think most legitimate, serious investors are doing research, critical analyses, and then investing for the long haul (for years or decades) based on that, as it should be.