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Saturday, November 1, 2008
No short selling here

The Financial Services Board (FSB) says there is currently no need to ban short selling as in some foreign jurisdictions, notably the US and UK markets.
FSB spokesperson, Russel Michaels says, “From what we understand, the concerns in the United Kingdom and the United States about the short selling of financial shares relates mainly to what is known as naked short selling, that is short selling without having borrowed the securities. Those foreign regulators are concerned that there may have been manipulative activity and the spreading of false and misleading statements about certain financial institutions.
“Of the 29 financial institutions in which the FSA has implemented the moratorium on short selling, only one is listed on the JSE, being Old Mutual plc.
“The JSE’s equities rules regulate against naked short selling in that they provide:

• A member may only enter an order on the JSE equities trading system or report a trade to the JSE equities trading system if the member has appointed a Central Securities Depository Participant, has SWIFT connectivity as prescribed by directive and has taken reasonable steps to satisfy itself that, in respect of a sell order:
o A controlled client has evidenced to a member that they own the equity securities to be sold in uncertificated form and that such securities will be available for settlement on settlement date; or
o Another transaction has been concluded which provides for an equivalent amount of equity securities being available for settlement on settlement date; or
o A satisfactory borrowing arrangement is in place which provides for an equivalent amount of equity securities being available for settlement on settlement date; or
o A corporate action provides for an equivalent amount of equity securities being available for settlement on settlement date.

“In addition, the settlement procedures on the JSE, which are contractual, also make it very unlikely that there could be naked short selling, because if no commit is made by the settlement agent by noon on T+3 (three days after the date of trade), the trade would have to be covered by the JSE member who effected the trade.  In the United States and the United Kingdom, they roll their settlement where necessary, for a period of anything up to ten days.
“In respect of the derivatives market, we believe that as the spot market and derivatives market are largely co-dependent on each other, should any action (or inaction) be taken in one market, the principle should be applied in the same way in the other market.
“Bear sales concluded on the JSE is closely monitored by the Exchange and the FSB is kept informed of any developments in this regard.
“At this stage the FSB has no reason to believe that taking the same action as the FSA and the SEC, is currently necessary.”

Copyright © Insurance Times and Investments® Vol:21.10 1st November, 2008
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