Asian Regulators Ban, Tighten Curbs on Short Sales By Bomi Lim and Janet Ong
Sept. 30 (Bloomberg) -- South Korea, Taiwan and Indonesia placed bans on short selling as declines in global stock markets deepened after the U.S. House of Representatives rejected a $700 billion plan to rescue the nation's financial system.
Regulators in Seoul said they would temporarily ban short selling on all stocks to arrest a 24 percent slump in the nation's stock market this year. Indonesia's stock exchange banned short selling for the month of October, citing unstable market conditions.
Taiwan, which on Sept. 21 barred the short-selling of 150 stocks for two weeks until Oct. 3, said it would tighten limits on short selling for the remainder of the year. It didn't say if the ban would end on Oct. 3 or be extended.
The measures by the Asian regulators came after U.S. stocks plunged yesterday, with the Standard & Poor's 500 Index tumbling the most since the 1987 crash. Regulators in the U.S., U.K. and Australia have taken similar measures on short selling.
``There is no reason why our market has to be in a panic because of the U.S. situation,'' Lim Seung Tae, secretary general of South Korea's Financial Services Commission, told reporters in Seoul. Lim didn't say how long the ban, which takes effect on sales starting tomorrow, would last.
South Korea's Kospi index dropped 0.6 percent today while Taiwan's Taiex index lost 3.6. The Taiex fell 33 percent this year.
Naked Shorts
The Indonesian stock market is closed for a holiday from today until Oct. 3. The benchmark Jakarta Composite Index fell 0.7 percent yesterday is down about a third this year.
South Korea, where so-called naked short sales, in which traders don't borrow the shares, are already banned, said last week it would increase oversight of short selling and make it harder for investors to borrow stocks.
It will also loosen, until the end of this year, the daily limit on companies buying back their shares, allowing them to buy 10 times more stock, Lim said.
Hong Kong said it would take ``more aggressive'' action against so-called abusive short sellers while the Philippine Stock Exchange approved a circuit breaker rule for a 15 minute trading halt if the benchmark index drops 10 percent from the previous day's close.
The Hong Kong Securities and Future Commission said its tougher measures ``may include market-wide controls and/or targeted action against individual persons or entities involved.''
Hong Kong's Hang Seng Index rose 0.8 percent today, trimming its decline in 2008 to 35 percent.
`Short-Term Solution'
Short sellers try to profit by betting stock prices will fall. In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference.
Taiwan's Financial Supervisory Commission said in a statement late last night that the amount of borrowed shares that can be traded each day will be limited to 10 percent of a company's listed stock, from 25 percent. Institutional investors will be limited to trading borrowed shares equivalent to no more than 1 percent of a company's total listed shares, from 10 percent now.
``These measures by FSC are short-term solutions to boost investors' sentiment and their impact is limited,'' said Dominic Lin, who helps manage the equivalent of $2.4 billion as a fund manager at HSBC Holdings Plc in Taipei. ``Investors are waiting to see if the Fed will cut interest rates.''
Stabilization Fund
Taiwan's National Stabilization Fund is monitoring the market and will enter it when necessary, Vice Premier Paul Chiu said in a briefing today. The state fund was created in March 2000 with NT$500 billion ($15.5 billion) to help shore up the market when it is affected by non-economic factors.
The U.S. Securities and Exchange Commission halted the short selling of 799 financial companies in a move to combat investors seeking to drive down shares following the collapse of Lehman Brothers Holdings Inc. and the bailout of American International Group Inc.