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BEIJING/SHANGHAI, Feb 6 (Reuters) - China's securities regulator said on Tuesday it would suspend brokerages from borrowing shares for lending and cap the size of the so-called securities re-lending business, as part of further efforts to curb short-selling.

The watchdog will also ban securities lending to investors who sell stocks on the same day of purchase, and vowed to crack down on illegal arbitrage using short-selling.

Chinese authorities have announced a raft of measures to support share prices after the market (.CSI300) plunged to five-year lows last week as confidence wanes in an ailing economy.

China regulator announces more curbs on short-selling

Is there any Western country that suspended share borrowing to curb short-selling? I know that regulators across the world sometimes ban short selling, either temporarily or more permanently, in order to restore investor confidence or to stabilize falling markets, but I am wondering if any Western country specifically banned share borrowing as it seems that it's tied to the rule that Chinese traders cannot buy and sell a share during the same day.

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    Lots of countries regulate margin lending with shares as collateral, but I'm not certain if it has been done to this extent or for this purpose.
    – ohwilleke
    Feb 7 at 1:31

2 Answers 2

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South Korea.

Naked short selling had been illegal in South Korea. But financial authorities surprised the market in early November, when they introduced a total ban on all types of stock short selling. Illegal short selling in the nation is “rampant,” the regulators said.

South Korean stocks surge after market regulator bans short selling until June 2024. South Korea Alleges Naked Short Selling by Two More Global Banks.

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    Post hoc ergo propter hoc.
    – wrod
    Feb 7 at 10:11
  • Is South Korea considered a 'western' nation? 'Westernized', perhaps, but calling it 'western' seems like stretch.
    – JimmyJames
    Feb 7 at 15:56
  • @JimmyJames From the political-economic point of view, it might be qualified to be named with the West :)
    – r13
    Feb 7 at 21:22
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The only country which can meaningfully try to do this is the US. And the US would not do that because it's a foolish idea.

Shares traded in other markets have American depository shares, which are technically derivatives because they depend both on the prices of shares and on the exchange rate. And since American depository shares trade on the US equity markets, they can be shorted in the US.

The reason it would be foolish to try this is that, with sufficient capital requirements, large investors can write naked put options.

Which will enable anyone else to enter into synthetic short positions. Anyone buying a put option and selling a call option, both "at the money," would have the same risks and rewards as someone shorting the underlying shares. Which is why it's called a "synthetic short."

So even if the shorts were completely outlawed, it would just increase the "synthetic" shorts market, which is the market for combinations of securities which have the same risk&reward profiles as the equivalent shorts.

The only reason China can do these types of things is that China has rules which severely limit the number of shares that can be owned by non-citizens, even by Qualified Foreign Institutional Investors (QFII). It makes the market less efficient, but it gives the government much more control.

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