Wednesday, January 13, 2010

The Debts of the Lenders: China Allows Short Selling

Although it is only a trial run, the Chinese authorities have taken a much needed step in the right direction by allowing freedom of capital to migrate in both directions instead of only up. The move is aimed at increasing arbitrage opportunities between the mainland A shares market vs the H shares in Hong Kong.

Short sellers add much needed breadth and scrutiny to a market by increasing liquidity. Lower brokerage fees and commissions are just one byproduct. Most importantly, short sellers act as an external check on corporate malfeasance and weakness by exposing dark deeds to sunlight.
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