In light of the recent short selling ban, are investors still allowed to short index funds or ETFs that have positions in those companies on the banned list? Thanks in advance for your insight.
the underlying of the ultrashort etf’s do not consist of shorts, but are futures contracts
The short answer is yes, the long answer is “but the ban rule had several unintended consequences which are mucking things up.” It’s almost as if this rule was hastily thought up with little review or thought put into in order to show the SEC has power.
But that’s not the question - the question is whether you can short an ETF that has a position in, say, GS. I think if it ain’t on the list of 799 you can short it. Of course, that’s why this partial ban doesn’t work except for a short time because in “short” order I would introduce a class of ETF’s that contained groups of, say, 2 stocks and keep ahead of the list.
That’s why I said the short answer is “yes” - there’s no ban on shorting financial related ETFs, and I have shorted ETFs with financial shares since the ban went through. You just borrow the shares in the normal manner. However, the loan desks have a tougher time hedging themselves (sometimes they don’t borrow but just create synthetic ETFs) so they’re up in a tizzy about it and are making it difficult.
Sorry - we overlapped. My response was to drs. Your answer is spot-on in my book.
I believe the FSA’s version for BOI reads: 10.1 A person, other than a market maker, may not enter into any transaction, transactions or arrangements which have the effect of generating a net economic benefit which would arise from a fall in the price of the shares of either the Governor and Company of the Bank of Ireland, Allied Irish Banks Plc, Irish Life and Permanent Plc or Anglo Irish Bank Corporation Plc. To my mind this prohibts selling a long position as a “net economic benefit” would arise should the share price fall. Presumably trading on BOI stocks hasn’t ceased so a free market on the interpretation has begun. Where ETFs fit in is probably unknown.
Interesting… Definitely an indication that this ban was not thoroughly thought-out or researched. *SMH*