A Review of new Regulatory Developments for Short Selling in Asia:. Francois-Serge Lhabitant and Jeannine Daniel. Reading Questions. What are the key similarities and differences between shorting in the West and Asia?
Francois-Serge Lhabitant and Jeannine Daniel
Asia appear to be behind the curve in developing a more harmonious approach to short selling regulation. At least Europe appear to be making headway on this front…………..
Similarities include approach/tools used by way of disclosure requirements and restrictions. Are there any others? ……..
Which of these is the most onerous or restrictive for an investor?
Answer. A total ban of covered short sales, as this makes it impossible for most market participants to short sell financial shares.
So many choices…?
A shares: shares of Chinese companies listed in Shanghai or Shenzhen under Chinese law, and denominated in Renminbi. They are only available to Chinese nationals and to selected large foreign institutions (Qualified Foreign Institutional Investors, or QFII) through a quota system.
B shares, a.k.a. Renminbi Special Shares, which are registered shares listed and traded in securities exchanges inside China, with a face value denominated in Renminbi but subscribed and traded in foreign currencies primarily by foreign investors. Since February 2001, domestic retail investors were allowed to trade B shares. However, B shares market capitalization only represents 2 to 3% of the A shares market capitalization.
H shares, which are shares in Chinese companies issued in China under Chinese law, but listed on the Hong Kong Stock Exchange and subject to its stringent listing and disclosure requirements, and denominated in H.K. dollars. They are available to international investors with minimal restrictions.
N shares for companies that are listed on the New York Stock Exchange, and more recently in Singapore (S shares) or in Australia. Most N-shares are traded in the form of ADRs with the underlying shares listed in Hong Kong. They are available to international investors with no restrictions. Since April 2006, Qualified Domestic Institutional Investors (QDII) are also allowed to access foreign security markets.
Additional homework……what are the perceived advantages and disadvantages of each option?
The chosen few…… to shorting’……
Securities lending was initially limited to stocks in the China Security Index CSI 300, and only proprietary holdings of stock could be lent.