ممنوعیت فروش کوتاه مدت و کیفیت بازار: تجربه بریتانیا
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|13142||2012||12 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Banking & Finance, Volume 36, Issue 7, July 2012, Pages 1975–1986
We study the effects that the ban on short sales of shares in financial firms introduced in late 2008 and removed early 2009 had on the microstructure and the quality of UK equity markets. We show that the ban did nothing to affect order flows: financial stocks were being more aggressively sold off than their peers pre-ban and this situation persisted through the ban period. Trading volume in financials was massively reduced, however. The ban decimated order book liquidity for financials. The deterioration was symmetric, affecting the limit buy and limit sell side of the order book equally. Finally we show that, through the period of the ban, markets for financial stocks were substantially less efficient and that the role of the trading process in aiding price discovery was greatly reduced. The effects identified above were largely reversed once the ban was lifted. The persistence of the deterioration in market quality and liquidity though the relatively long-lasting UK ban on short selling suggests that other major market developments such as the TARP program were not responsible since these were concentrated in the early half of the ban. We thus argue that the short selling ban was responsible for detrimental effects on the quality of UK equity markets and that, far from being stabilising, the ban exacerbated problems in valuing UK financial stocks.
Short selling is the practice of selling a security that an agent does not own. Speculators short sell a security with the intention of buying it back at a later date at a lower price, so as to profit from a price decline.1 While frequently attracting ire from executives of companies subjected to the practice, some form of shorting is permitted in most major stock markets since short sellers may add liquidity to the market and can contribute to price discovery. A large body of academic literature summarised below confirms that, on average, the presence of short sellers is beneficial for liquidity and price formation. Amid the turmoil in financial markets as the banking crisis of 2008 intensified, however, the UK’s Financial Services Authority (FSA) took the step of banning short sales of the equities of a number of financial institutions. New provisions to the Code of Market Conduct were announced on Thursday 18th September 2008 effective 00:01am the following day. The provisions prohibited the creation or increase of net short positions, naked or covered, in publicly quoted financial companies and required daily disclosure (from 23rd September) of all net short positions in excess of 0.25 per cent of the ordinary share capital of the relevant companies, together with disclosure of net short positions held at close on 19th September. The ban included intraday trading and had a global reach such that shorting of UK financial shares outside of the UK was also banned. The ban extended to cover shorting through derivatives, contracts for differences and spread betting, but since only ordinary and preference shares were covered by the ban short positions in bonds and credit derivatives were still possible. Market makers were exempt. The announcement specified that the provisions would remain in force until 16th January 2009 but that they would be reviewed after 30 days. Stocks in 32 financial firms were covered by the FSA’s ban at the time of announcement.2 The motivation for the new provisions banning short selling was clarified in a speech by Sir Callum McCarthy, Chairman of the FSA, on the evening of 18th September 2008.3 “We have been much concerned – as have many – at the volatility and what I would describe as incoherence in the trading of equities, particularly for financial institutions. There is a danger in a trading system which allows financial institutions to be targeted and subject to extreme short selling pressures, because movements in equity prices can be translated into uncertainty in the minds of those who place deposits with those institutions with consequent financial stability issues. We have seen acute examples of this phenomenon in both London and New York this week.” His speech echoed the statement of his Chief Executive, Hector Sants, who earlier in the day had said: “While we still regard short selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets.” The statements from senior executives at the FSA make it clear that the ban on short sellers was in response to exceptional market events. Thus, to the extent that they were aware of it, regulators ignored existing academic research on short-selling in stable market conditions, almost all of which suggests that short-sellers have positive effects on market quality. As the regulatory response was predicated on short-sellers performing very different roles in stable versus turbulent markets, it seems worthwhile to analyse the quality of UK equity markets in Autumn 2009 and to evaluate the effects short-sellers might have had in those volatile times. We study how banning short sellers from operating in UK equity market in Autumn 2009 changed market quality (defined below). Other studies seek to do similar work on US and other markets and these are surveyed in Section 2. The main innovation in our study is in the quality of the microstructural data we analyse.4 We have access to full order level data and signed transaction information on all stocks traded on the London Stock Exchange. From the order book data we can compute separate measures of buy and sell liquidity and, as the trade data sign every execution precisely, we can measure buy and sell volume, and thus net order flow. This allows us to go far beyond the study of prices, bid-ask spreads and volumes contained in prior work on emergency short sales bans (e.g. Beber and Pagano, 2009, Boehmer et al., 2009 and Harris et al., 2009). For example, we can study whether financial stocks were subject to sustained and unusual selling pressure relative to other stocks. Further, given that the FSA’s policy intervention was explicitly designed to be asymmetric in its effects on traders, targeting short sellers but not long sellers or buyers, one might conjecture that it would affect trading and/or liquidity on the buy and sell sides of the market differently. Such asymmetries can only be detected using data such as that we employ. We focus on the following measures of UK market quality around the time of the short sales ban: • Trading activity: we measure volumes and, more interestingly, order flows (i.e. net aggressive buying pressure) in financial stocks versus non-financials. • Liquidity: we examine spreads and the depth of the limit order book. We can analyse buy and sell side depth separately and thus evaluate whether the ban on short-sales had an asymmetric effect on liquidity. • Efficiency: via the techniques introduced by Hasbrouck (1991) we calculate the proportion of variation in returns that is driven by information, as opposed to noise. This has been used as a measure of market efficiency by, for example, Hendershott and Moulton (2011). • Price discovery: we evaluate the contribution of trades to the determination of the efficient market price, again using the Hasbrouck (1991) technology. We use these measures to address two main issues: Can we identify the “disorderly” conditions that prevailed in the period prior to the ban’s introduction, and did the change in rules on short sales do anything to remedy the “incoherence” of stock markets at the time? The answer to both of the questions above is “no”. We struggle to identify any factors that would justify regulatory intervention specifically to support financial sector stocks. While prices were falling and there was strong negative order flow (i.e. selling pressure) before the ban, this was true for both financial and matched non-financial stocks. Further, efficiency and the role of trading in price discovery declined pre-ban by roughly the same amount for financials and non-financials. It is therefore not clear to us why the FSA felt it needed to intervene specifically to change the nature of trading in the equities of financial sector stocks. Any disorderly conditions appear to have been market-wide and not concentrated in financials. While we find few differences between the behaviour of financials and non-financials before the ban, once the ban was enacted differences become very apparent: liquidity drained from the order book for financials to a much larger extent than for non-financials; transactions costs for small and large trades increased much more dramatically and trading volumes fell much more dramatically for financials than non-financials.5 Finally, during the ban, efficiency and the information content of trading deteriorated much more for financials than non-financials. None of these moves would appear to be in line with the objectives of regulators. Furthermore, we find no evidence that restrictions on one set of participants – short sellers – had asymmetric effects on the market. Liquidity drained more-or-less equally from both the bid and offer-sides of the order book, and while volume fell, aggressive sells and aggressive buys fell by similar amounts, leaving order flow unchanged (and thus still negative). If by removing short sellers the FSA had hoped to make buying financial stocks cheaper or more attractive their move failed. Trading in financial stocks, whether to buy or to sell, became much more expensive and less attractive. Finally, we also show that the ban resulted in a shift of trading off the limit order book towards darker bilateral trading between dealers. Again, it is unlikely that the FSA wished to shift the supply of liquidity towards less transparent segments of the market as this would likely contribute to the reduced efficiency and slower rates of price discovery that was observed for financials. One additional benefit of our study is that we can take advantage of the relatively long-lived FSA ban on short selling. Studies of the effect of the SEC’s short sales ban are complicated by its very short duration and the multitude of other policy initiatives and news that were emerging at the same time. For example the announcement and introduction of the Troubled Asset Relief Program (TARP) were contemporaneous with the introduction and removal of the US ban respectively. We show that the detrimental effects on liquidity and market quality were stable and held persistently throughout the relatively long-lasting UK ban on short selling, but largely disappeared once it was lifted. The sharp improvements in liquidity and efficiency coinciding with lifting of the ban strongly suggest that the FSA’s ban on short selling was to blame rather than other market developments. The continued bans on short selling in some jurisdictions, the 2011 re-introduction of restrictions on short selling in France, Spain, Italy and Belgium and published comments by regulators suggest that some policy-makers still think that such changes to trading rules can improve the quality of trading in equities and enhance financial stability. Our microstructure analysis of the market for UK financial stocks around the 2008/2009 ban on short selling gives little support for such views. Our results suggest that the positive contribution of short sellers to market quality in normal times found in previous literature did not turn negative during the crisis. The rest of the paper is structured as follows. Section 2 contains a summary of the key theoretical and empirical findings from the short selling literature. Section 3 details the data used in the analysis. Section 4 presents our empirical results and the paper closes with conclusions in Section 5.
نتیجه گیری انگلیسی
In this paper we have examined the microstructure of UK stock markets between June 2008 and February 2009. This period spans the introduction and subsequent removal of new provisions to the Code of Market Conduct issued by the Financial Services Authority that banned the creation or increase of net short positions in publicly quoted UK financial companies. We have attempted to answer two key questions in this paper. First, was there any clear difference between the behaviour of financial stocks and set of control group stocks that might have motivated the FSA’s move to ban short-selling? Since figures in the FSA spoke of ‘‘incoherence’’ in stock markets and stated that ‘‘disorderly’’ conditions prevailed in the period prior to the ban’s introduction we might have expected to find evidence of abnormal conditions in the market for financial company stocks in the period before 18th September 2008. Second, what were the effects of the ban on short selling on market conditions in general, and on liquidity, efficiency, trading activity and price discovery in particular? As the ban on short selling was motivated by the existence of abnormal market conditions, we investigate whether there was an improvement in market conditions once the ban was in force. In short, we find no strong evidence that conditions in the market for financial stocks were any different to conditions for control group stocks in the period prior to the ban. Market quality indicators were deteriorating in late August-early September, but they were deteriorating for all stocks and not just for financial companies. Trading costs were rising and trading volumes were increasing for all stocks. Of course, stock prices were falling at this time and order flow was significantly negative as traders aggressively sold stocks, presumably both due to liquidation of long positions and short sales. But again, conditions were similar for financial and non-financial stocks making it hard to justify the intervention by the regulators designed specifically to affect only financial sector stocks. The effect of the ban on market conditions is quite clear. Liquidity in the market for financial stocks drained away and trading costs rocketed. Trading volume on the order book fell noticeably at a time when volume in stocks not subject to the ban rose. Critically, we find that the cost of buy orders and sell orders increased approximately equally, and that the numbers of market buy and sell orders fell by similar amounts. In other words, the ban raised the cost of trading and reduced the volumes traded but did not alter the balance of buy and sell orders. This suggests that long-sellers were the real drivers of negative sentiment towards financial stocks. Moreover, if high selling pressure on financials was the real reason behind the ban, its introduction did nothing to alleviate this pressure. Other market quality indicators were significantly worse during the ban. The fall in liquidity resulted in higher price impacts following a trade, reduced market efficiency and a smaller price discovery role for trading. The ban served to make the trading process less rather than more informative. We demonstrate that the reduction in liquidity and market quality persisted though the relatively long-lasting ban on short selling in the UK. Furthermore we observe strong reversals coincident with the lifting of the ban. Together these suggest that the effects we identify were indeed caused by the ban rather than other major market developments such as the introduction of TARP in the US since the latter were concentrated in the early days of the UK’s ban. We can also draw some inferences regarding the behaviour of short sellers from our findings. At the time of the ban, short sellers were often portrayed by commentators as predatory consumers of (bid-side) liquidity who aggressively sold financial stocks (presumably buying them back later on once their prices had dropped sufficiently). Their removal was thus justified in that it would allow stability back to markets as potential buyers of stocks faced reduced risks of being preyed upon. The academic literature, conversely, typically portrays short sellers as more passive (offer-side) liquidity suppliers, willing to sell an asset if its price rises ‘‘too far’’ and so helping to correct over-exuberant markets. Removing thistype of market participant would only serve to reduce liquidity and worsen market quality. Our findings suggest strongly that the behaviour of short sellers is best captured by this second portrayal, even in the volatile last few months of 2008.