Dienstag, 18. Mai 2010

Karl Denninger über das Short-Verbot

"Liquidity? What's That? (Short-Sale Ban in EU)
In a display of idiocy reminiscent of what was done here in the US a couple of years ago Reuters has up a wire report (headline only) that Germany intends to ban "short sales" at midnight (presumably their time) this evening.

Zerohedge is reporting that this is only "naked" short sales but will apply to naked CDS, which means it will damage hedging activity for EU-area bonds.

Does anyone remember our short-sale ban - in 2008? European (and US) markets skyrocketed, only to collapse just days later and continue collapsing for the next six months!

This sort of thing kills liquidity.

Again we have governments that refuse to address the actual issue, which is the OTC nature of these derivative products where nobody can tell who's got what open - that is, what the open interest is, along with the bid and offer. In addition nobody is forced to post margin against a central counterparty, which further decreases transparency and worse, makes systemic risk come to the fore.

The correct move is to force all derivatives onto an exchange, force bid, offer, last and size to be public, and force everyone to post cash margin against all underwater positions nightly. But that means the banks can't screw, er, skim off those extra basis points on every trade since buyers and sellers can then see published prices from everyone at once instead of dealing "over the counter" with a bank's credit desk that can and will deprive you of that information so as to financially hose the customer.

Bluntly: This is a desperation move and instead of doing what the EU expects it will likely cause a furious short-covering rally - followed by a price collapse in the instruments where they can no longer be "covered."

After all, ordinary selling remains (for the time being anyway) legal.
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