Yesterday it was announced in Germany that the short selling of certain securites would be suspended for some time. As soon as this was announced I saw several comments in twitter that this was a bad idea. Two things I'd like to mention:
1. The measure is actually quite mild, it only covers what is known as nacked short, i.e., selling something you don't even own. Shorting securities is still feasible in Germany, you just need to find someone that lends you the security first.
2. Why would anyone consider this a bad idea? What actually surprised me was to learn that in Germany nacked short selling was allowed. In the US that is not allowed except for market makers and I think that is the way to go.
Don't get me wrong here, I do believe short selling performs a useful service (for hedging purpuses and for finding Lehman's and Enron's, for example), but markets tend to overeact (overshoot if you want to sound more fancy) and when they do so on the downside the results can be quite scary. Given this a little sand on the wheels does not sound ludricous to me and this one seems to be the least intrusive way. In short: I agree on this one with the German authorities--not that they care of course.
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