(Bloomberg) Moscow bans short selling, indicating officials are preparing to reopen the market.
Russia is banning short selling in some of the country’s biggest companies.
The power to ban a strategy used by hedge funds to inflict damage on a company’s stock raises curiosity.
Is this Russia’s way of raising capital?
And should more countries like the U.S. also ban short selling?
Let’s break it down together.
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Moscow bans short selling in some of Russia’s biggest companies
Investors won’t be allowed to bet on declines in about 30 Russian companies, according to Bloomberg sources.
Most of which are petroleum and coal companies.
The decision went into effect on Tuesday.
Russia’s stock market has been closed since February28th, the longest shutdown in Russia’s modern history.
There has not been any confirmation as to when stocks will begin to trade in the Moscow Exchange.
The head of portfolio strategy at Toronto Dominion Bank in London says the Russians might want to remove residual risk on falling prices.
Other exchanges have used short-selling bans to limit volatility during a crisis.
Back in March 2020, at the peak of the Covid pandemic-fueled selloff, Italy, France and Belgium also banned shorting selling.
In other places such as mainland China, investors have limited ability to short stocks.
In the United States investors have what seems like an unlimited ability to short company stock, which in some cases results in bankruptcy.
Let’s use Hong Kong as another example.
Only stocks specified by the lit exchange in Hong Kong may be eligible for shorting.
Investors say its near certainty that stocks will tumble when Russia’s stock market opens.
Should the U.S. ban or limit short selling?
The U.S. on the other hand has a real issue with abusive short selling practices.
A collective of institutions such as banks and hedge funds collude to drive the share price of a company’s stock down for profit.
Financial institutions will even go as far as to bankrupting a company to avoid paying taxes on the bets.
The Justice Department is currently investigating banks and hedge funds relating to market manipulation and other injustices in the market.
If Moscow can ban short selling, and other countries can too, do you feel the U.S. should as well?
Due to the capitalistic nature, banning short selling in the U.S could prove to be difficult, which raises the question; should it be limited?
I’d love to hear your thoughts below.
Is this ban temporary?
It seems like Moscow’s short selling ban may only be a temporary strategy for the country to begin stabilizing again after its economic turmoil.
Russia was removed from the SWIFT system in February when it invaded Ukraine.
This escalated tension worldwide as Russia was no longer able to access money outside the country.
The biggest companies in the world also pulled out from Russia which further crippled its economy.
What the ban on short selling in Moscow shows us is that governments have the power to remove the same predatorial short selling that we see happening in recovering companies such as AMC and GameStop.
While short selling has its use in the market to balance volatility, limiting the use of short selling on a group of companies wouldn’t be such a bad idea.
I’d love to hear what you think.
Leave your thoughts in the comment section below.
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