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Mon 28 Jun 2010 12:01 PM

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'Legalise short selling' says Dubai bourse CEO

Jeff Singer says there are forms of short selling that could be Sharia compliant.

'Legalise short selling' says Dubai bourse CEO
BEAR MARKET: Jeff Singer said short selling is a way for investors to make money in a bear market in Dubai. (ITP Images)

Jeff Singer, CEO Nasdaq Dubai, called on Gulf policy makers on Monday to allow short selling on the region's bourses.

"You can only make money in a bull market here - that needs to change. You can't short the market here. So in a bear market the institutional investors run for the hills," he told delegates at the Arabian Business Learning From Legends Conference.

"That (investors exiting the market) was what we saw in June 2008, and it was just unbelievable" he said, referring to market reaction to a Morgan Stanley report forecasting Dubai property prices would decline by between five and 10 percent.

"There has to be a way for institutional investors to make money in a bear market here. That is short selling. I know there are a number of proposals for it to happen, and I think the time is right now," he said.

Singer added he was not advocating so-called 'naked' short selling - effectively betting against the negative performance of a stock without actually holding any of that stock - which he said could never be compliant with Sharia financial practice.

There have been calls across Europe recently to ban naked short-selling.

Instead, he said, there were other forms of short selling that could be Sharia compliant and would be beneficial for Gulf markets, whose performance he described in 2010 as "negative."

He said: "They are under consideration and I believe they would satisfy the bulk of Sharia scholars."

Singer also called on Gulf authorities to ensure the various regional bourses met the criteria to see them upgraded by international authorities from "frontier" status to "emerging" market status.

"There are billions of dollars in institutional funds earmarked for investment in emerging markets," he said, adding that Gulf bourses were missing out because of their current "frontier" status.

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Ali Saleh 9 years ago

So called experts have been a major force in lobbying the congress to stop the SEC regulations regarding short selling, all you have to do is look what Europe and Australia are doing. Short selling have destroyed many companies. Hedge Fund managers love them. Be Careful.

Joe E. 9 years ago

Jeff Singer's spot on. Short selling will add liquidity and price efficiency to Gulf markets. It will also encourage more corporate transparency. Of course regs are necessary to ensure that abuses don't occur--banning naked shorts is one key guidepost; ensuring that broker-dealers manage margin risks to short specialists (and all market participants for that matter) is another. But let's not throw out the baby with the bath water. Institutionalized short selling will be another step forward in the maturation of GCC capital markets.

Jimmy Blue 9 years ago

How will this benefit the local and regional market? A lot more explanation is needed and strong regulation which we will get neither of. The only people that will benefit are the short term investors that I thought the UAE was now looking beyond. Focus on strong fundamentals before you start looking at short selling mechanisms. The reason it is not sharia compliant is because it is plain unethical in any market.

kingkaiser 9 years ago

For a market to be fairly priced, you should be able to go short and long easily. Short-selling allows you to express non-bullish views, and thus can be helpful in deflating bubbles. It doesn't prevent them, but serves to dampen them. Secondly, it keeps market participants active in periods of low economic growth, which is net positive for the market. Third, changing this mentality against shorting will be beneficial in building up a liquid derivatives market, which can be used to insure against long positions. Long run, this can be very positive for the entire economy, reducing the impact of market fluctuations. I do realize its possible to abuse short selling, and I'm sure the first few years will be marked by abuse. Thats not a reason to ban it, but an incentive to improve the regulatory framework.

Khawar Nehal 9 years ago

Mr. Jeff Singer is spot OFF. By allowing shorts you allow people to sell more than they possess in their right hand. In a bear market it allows speculators to enter without buying first. Allowing more selling is going to create an artificial supply of shares and not create any artificial depletion of the shares. More supply, same demand the basic economics 101 of a more bearish market. The reason such people state such things because their salaries are dependent on commissions on volume. They do not care about the market valuations. We are not as stupid as they think we are. By the way God banned shorts to reduce the split between the rich and the poor. Regards, Khawar

Jimmy Blue 9 years ago

Surely if you want to deflate bubbles or show lack of sentiment towards a market you simply just don't invest / reduce volume. What the traders want is to be given a chance to take out more money from the markets even when it doesn't exist and further impact tough conditions and drive prices down so they can continue to receive huge bonuses. I think the world is wiser now, it reminds me of the cigarette manufacturers who are moving to advertising in less educated markets because they can't get away with what they used to in more developed markets.

kingkaiser 9 years ago

The supply/demand argument only holds if supply is not finite (which is not the case with shares of a company). I can short all I want, but if I'm shorting a company that I expect to do well, I will lose money very rapidly as at some point I will have to make good and drive up prices by buying. That Economics 101 argument doesn't hold here because there is no additional number of shares created while shorting - you borrow from other market participants. Total number of shares are identical. And shorting is not a method of showing lack of sentiment - its a way of showing bearish sentiment! And lower volume is the last thing you want since it increases volatility making the market LESS safe for participants! Will traders (which I am not) make money? Certainly, but the notion that the trades dont exist is absolutely wrong - no rational market participant is going to make a bearish trade just because he wants to cream a market. he will make it only if the fundamentals are sound; in other words, he will spot bubbles and act on them before they get too big. This is good for the economy, since it prevents people from buying at a higher top! For all the people who bought shares of Emaar in Summer 2005, I'm sure they would have loved a mechanism that kept Emaar from ever getting to a super inflated price of AED 28! A level it has never seen since, even in the absence of organized shorting. I repeat, it is easy to abuse shorting, but thats where effective regulation comes in.

Saudi Engineer 9 years ago

...but I do think that what Mr. Jeff Singer is asking for is ridiculous. These economists and financial consultants and all these people managing hedge funds and investments and blah blah..have they learned nothing?? Hasn't the economic melt-down taught them anything? Even Mr. Alan Greenspan the "father of modern" whatever admitted he and his policies were wrong, and (at least partially) led to the global financial crisis. Economists the world over have been re-analyzing the ideas of short selling and selling mortgage backed securities (amongst other economic policies). And while I don't completely agree with Sharia compliant economics in their present form, there is a reason that both short selling and "selling debt" are both prohibited in Islam - they both do much more harm than good. While some may benefit from short selling, the overall effect on the market and especially on individual stocks is negative. Mr. Singer, I think it's just your own greed and capitalist views which allowed you to make this kind of suggestion. People like you and your investment bankers would be able to make more money from other people's losses. I mean logically, how can anyone *make* money from a market or any other business which is *losing* money? If it were a private business we would know something fishy was going on. I realise our markets and financial policies in the Gulf may not be as advanced or developed as those in the US and Europe, but capitalism is not the only choice for a healthy economy my friend.

Tristan de Ferluc 9 years ago

Teaching people how to buy/speculate with money they do not have, sell what they do not posess is opposite what is needed since 2007. "Back to basics" is not a concept in my mind but a real need to improve the global finance situation. We have hardly progressed since that time and I remain convinced we will probably need an other big wall to address seriously the right subjects. The economy of pure profit has to become more mature, as we do.

Simon 9 years ago

The investment markets are nothing more than a casino. Its a game of chance, pure gambling, with very few participents investing for the right reasons other than for greed and perceived easy wealth. Short selling is the mother of all evils, derivitives being the father. How on earth could short selling ever be sharia compliant??? I would love a Sharia Scholar to sit down and write a 'blog' on how he considers short selling to be sharia compliant and I will sit down and rebut his views. I know nothing about the muslim religion but I am sure somewhere it doesn't agree to companies being attacked by institutional investors for the sake of making money! Jeff Singers quote says it all "You can only make money in a bull market here - that needs to change" Make money, make money, make money...this is the essense of his message. Short selling, when done by institutions can be a major killer to a company share price. They can be at risk by pure rumour...with the institutions in the main perpetuating those rumours for financial gain. When there's money to be made banks and other institutions let NOTHING stand in their way to making a fast Buck$. UAE is definately not ready for this western style of trading. It should be banned in Europe and the US for the damage it does...but that will never happen because there's too much money in it for the banks and hedge fund managers. woe be tide the UAE markets if short selling is ever allowed. They'll start with the indicies first then to individual company shares. You only have to look to the west to see how banks have misbehaved...