DISQUS

david · 6 months ago

Why is disclosure of short positions in the US bad for markets but disclosure in the UK hasn't caused the end of world?

marketfolly · 6 months ago

hey david, we touched on that topic in a previous article here if you're interested: http://www.marketfolly.com/2009/01/public-discl...


the main problem is that since shorts are looked at so negatively by the vast majority, they could become targets. Targets of management, other investors, other funds, etc. People could try to squeeze others out. But, more importantly, we feel that such disclosures would generally discourage funds from taking major short positions. And that's bad because shorts help provide liquidity to markets as they are a guaranteed buyer.... at some point, they have to cover their position and buy the security.

In the UK, they've only required disclosures of financials with major positions, not all short positions. Remember in the US when they enacted the shorting ban on financials? In the end, it's really about unnecessary regulation and over-involvement in free markets. Don't get me wrong, we're for regulation and think there should be more... just not publicized... keep it within the regulatory body walls and then if a problem is discovered, take action. When the government or regulatory bodies force you to do certain things, it defeats the whole purpose of free markets.

These types of actions make markets more artificial and people will then try to game the system even more to find a workaround.