ISE offers ‘tentative support’ for plan to drop ban on short selling of stocks

THE management of the Irish Stock Exchange (ISE) said it tentatively supports the dropping of the current ban on short selling of shares in Ireland.

However, the ISE’s chiefs are hesitant in pushing the merits of a disclosure regime as an alternative, given the circumstances surrounding the publicly quoted Irish banks at present.

Appearing before yesterday’s sitting of the Joint Oireachtas Committee on Economic RegulatoryAffairs, ISE chairmanPadraic O’Connor said a move to a disclosure regime, along the lines of many countries where the short selling ban has already been lifted, would be “logical” but ISE would be hesitant to go there immediately.

Short selling refers to the practice of profiting from the quick trading of shares, where the buyer borrows shares, sells them and buys them back from the market when their price declines; profiting by keeping the difference between the higher selling price and lower repurchase price.

The Financial Regulator banned short selling in Irish banking stocks in September 2008, after alarming drops in the banks’ share prices.

ISE chief executive Deirdre Somers said: “A degree of stability has returned to the markets and many regulators have withdrawn the bans that were imposed, replacing them mostly with disclosure regimes.

“However, the Irish market is relatively unique, as there continues to be a significant level of uncertainty regarding the final details of our banking recapitalisation. For this reason, withdrawing the ban in a similar manner to other jurisdictions is not necessarily the right decision for Ireland at this current time.

“Feedback from the market would suggest that the ban has adversely impacted liquidity in Irish banking stocks. This follows the experience of other markets where short selling bans were imposed.

“However, in an Irish context, it’s difficult to analyse whether the drop in liquidity is due to company specific factors, very difficult Irish economic conditions or the ban itself,” she added.

ISE management also said it is hopeful of a resolution being found to plug the legal gap regarding the regulation of stockbroking firms prior to late 2007.

A change in legislation, around that time, saw the regulation of stockbrokers resting solely with theFinancial Regulator, removing responsibility from the ISE. That meant that non-consumer complaints regarding issues of perceived misconduct on behalf of stockbroking firms, prior to November 1, 2007, cannot be heard by the ISE orFinancial Regulator butonly by the courts.

Asked about the ISE’s responsibilities, Mr O’Connor said: “We have a serious role to play in the infrastructure of ‘Ireland Inc’ and in developing the financial services industry in Ireland.”