Turkey moved to curb short sales and threatened “severe penalties” for stock manipulation, joining nations from Greece to South Korea in trying to stem bearish bets after the worst tumble in global shares since 2008.
The minimum cash or equity required to initiate a short sale on the Istanbul Stock Exchange was raised to 70 percent from 50 percent, according to an e-mailed statement from Turkey’s Capital Markets Board today. In a short sale, an investor borrows a security and sells it, expecting to profit from a decline by repurchasing it later at a lower price.
Turkish regulators are investigating whether short sellers manipulated share prices after the ISE National 100 Index tumbled 19 percent this month. South Korea began a three-month ban on short sales yesterday, while Greece started a two-month prohibition on Aug. 9. Italy increased disclosure rules for short sales in July.
The curbs in Turkey are “basically a confidence move to reduce the volatility, particularly in times like these,” Omer Omerbas, head of research at Ekspres Invest, an Istanbul-based brokerage, said in a phone interview today.
The bourse must ensure short sales aren’t “used for negative purposes,” Huseyin Erkan, chairman of the Istanbul exchange, said in an interview with Bloomberg HT television yesterday. The transactions increase liquidity and have “to be carried out according to regulations,” Erkan said.
Traders who execute so-called naked short sales will face penalties, the Capital Markets Board said today. In a naked short sale, a speculator places the sell order without obtaining the underlying securities.
Curbs against short sellers will probably help ease “panic” among investors after losses this month that erased about $7 trillion of world equity market value, Suha Yaygin, deputy chief of emerging markets at Toronto-Dominion Bank in London, said in e-mailed comments. The ISE 100 index rallied as much as 2.9 percent today before reversing its gains. The gauge fell 2.6 percent at 2:55 p.m. in Istanbul.
Restrictions on short sales are unlikely to provide a long-term boost to markets when “long-only” investors are dumping their holdings, according to Will Duff Gordon, London-based senior research analyst at Data Explorers, which tracks securities lending for institutional money managers. Global equity markets plunged to six-year lows in March 2009 even after at least 17 countries banned or restricted short selling during the second half of 2008.
“Last time, banning short selling didn’t stop the markets from falling,” Duff Gordon said in a phone interview yesterday. “You can’t stop asset owners selling their shares, or retail investors panicking. You’re only covering one group of traders, which may have not been that active anyway.”
Of the $7 trillion in equities available for lending globally, about $700 billion has been borrowed, according to Data Explorers. The total amount of stock lent was within about 7 percent of historic lows before stocks began tumbling last week, Duff Gordon said.
World equity market capitalization has dropped to about $47 trillion from $54 trillion at the end of July amid speculation that the global economic expansion is faltering, according to data compiled by Bloomberg. The MSCI All-Country World Index of stocks in developed and emerging countries tumbled 8.6 percent last week, the most since November 2008.