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To: Les H who wrote (5971)	2/20/2003 2:13:52 PM
From: Softechie	Respond to of 29600

Market Insight: Short-selling to lose secrecy By John Labate 02/20/2003 12:55 Regulators around the world have been taking a closer look at short-selling - one of the most secretive and controversial trading practices around. As the bear market bites, short-selling by hedge funds has been blamed for exacerbating the market downturn. Officials at the US Securities and Exchange Commission are on the verge of proposing new rules about short-selling, following similar moves in other markets. Short-selling involves a fund manager selling shares he does not own in anticipation of buying them back more cheaply at a later date. It often involves hedge funds borrowing stock from large institutions for which they pay a fee. Japanese officials passed new short-selling rules a year ago The debate in the UK is about how to increase transparency in these trades to give investors more information. US regulators are concerned that the rules, which have been in place and have changed little since the 1930s, are outdated in the current trading environment and too easy to skirt by professional traders. What is less understood is the impact of increased short-selling on stock trading, other than that long-term investors and many small companies blame the practice for prolonging the bear market. The level of short-interest as reported by the New York Stock Exchange reached a record 8.2bn shares in October. In January, that level fell, but remains historically very high at 7.6bn shares, accounting for about 2.2 per cent of total shares on the exchange. The problem with the current rules, say critics, is that they are the opposite of what is needed. The rules, tend to be more restrictive on large company shares than small ones, where most of the abuses take place. It is in the small, thinly traded shares that hedge funds and other active traders have been said to manipulate shares to their advantage through aggressive short-selling. Critics have said for years that aggressive short-sellers can gang up on certain vulnerable shares and take a share price lower in a market where no buyers will step forward. But short-sellers deny they are maliciously intent on driving share prices down. Hedge fund managers groan at the news that regulators are looking once again at the practice of short-selling. "Here we go again," says Hugh Hendry who runs a hedge fund in London at CF Odey Asset Management. "The notion is that the market is falling because of short sellers." "Markets are going down owing to previous mistakes by some big institutions which are selling shares. We trade on our opinions, not on a decision to beat up some poor company," Mr Hendry said. The debate about whether the US rules will change will depend largely on the political will in Congress and, perhaps, the White House. George W. Bush has long been a proponent of small businesses and he may be willing to lend an ear to the many companies who say their share prices have been hurt by illegal uses of an otherwise legal trading technique. But traders and many economists believe there should be fewer restrictions on trading, not more, and will likely fight fiercely against any drastic regulatory changes. In the coming weeks SEC chairman William Donaldson is expected to consider whether to take up the cause. Japanese regulators came under fire a year ago for cracking down on short-sellers just weeks before the end of the financial year. This led to widespread speculation that the authorities were trying to manipulate the stock market to ensure that the closing figure on the Nikkei for the year-end did not go below 11,000. This would ensure that Japanese companies did not have to book big losses on their securities portfolios that are marked to market on March 31. In the UK, the Financial Services Authority, the chief City regulator, is looking at making fund managers disclose the level of their short positions. However, the London market is out of step with New York and Japan in not imposing any restrictions on short-selling.