Can’t sell = gag order

The world over, there is a ban on short selling of securities.This is suppression of free speech

If the stock market starts falling precipitously, should we not beseech the government to help us? The Sensex was at 22,000 less than a year ago, and today it is nearly half that number. Many people's stock market wealth has been practically wiped out. Why can't the government simply allot some funds and do massive wholesale purchase of a variety of stocks, and prop up the Sensex? If not all the way to 22,000 then at least to, say, 18,000? Sounds unthinkable? (Some of you are going to say, most Indians don't own shares, so why should the government bail out those rich folks who own shares? Bailing out indebted farmers was problematic, but at least they are mostly poor and vulnerable. And buying shares is a risky activity, so those who deal in shares do so knowingly).
ers of the Unit Trust of India (UTI) were bailed out. Since the UTI investor base was very large, the bail-out got political blessings. This happens in other countries as well. In 1998 in the wake of the East Asian crisis, the Hong Kong authorities pumped big funds to prop up their stock market. The Shanghai index has similarly been protected from time to time. Our neighbours in Karachi have gone several steps ahead. In response to an almost violent dharna of stockbrokers, authorities in Pakistan declared that the KSE index should not fall below a certain level. If it did, the exchange would be shut. Pakistan has been downgraded by rating agencies, and is bleeding an outflow of $ 300 In India, the possibility that the share market will be supported by government action is unlikely. But that doesn't mean it has not happened here. A few years ago, unit holdmillion every week. There are skirmishes on the Afghan border where it seems Pak forces are fighting American forces. The country risk has risen steeply.
    Karachi's move to ban downward prices can be understood as a desperate attempt. But how do you explain the spate of knee-jerk reactions from all across the western world? The US has banned the short sale of more than 800 stocks. Australia, Germany, France, Belgium and ten other countries have all banned short sales. These are sale of shares that you don't possess, but are willing to bet that they are going down. As short-selling pressure mounts, the prices decline, and short-sellers are able to cover up by buying cheaply the fallen stock. It's the reverse of first buy, then sell. You first sell, then buy. The problem is as more shortsellers join the herd, stocks are collapsing all across. Incidentally, India's policy on short sales is unchanged. As usual, we were extra cautious in our policy in the first place, so we don't need to change anything. The authorities can proudly say "we told you so"!
    But if stockholders can't be bailed out since they took risks knowingly, then why is their short-selling curbed? That too is risky and done knowingly. Short-sellers are often caught 'short' because the anticipated price fall does not happen. Short-selling is part of normal price discovery process, and reveals bearish or bullish sentiment. If shortselling is banned, then the sentiment expression is being suppressed. It is like asking newspapers not to publish any bad news, since it creates a bearish sentiment. Markets are ultimately conversations, and suppression of trading is, in a sense, suppression of free speech. We have done it unwisely in commodity markets in India, and now other mature economies are doing it in their stock markets.
    Perhaps these are abnormal times. Just as you can't shout 'fire' in a crowded theatre, short sales are being given the status of inflammatory speech.

Ajit Ranade
on the wheels that make Mumbai run — money and economy

Markets are ultimately conversations, and suppression of trading is in a sense, suppression of free speech