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Tuesday, 29 May 2018

Short selling to be on the investment menu soon?

REGULATION WATCH- EGX-listed companies could soon have to contend with short sellers. The Financial Regulatory Authority’s (FRA) board of directors has reportedly approved proposed amendments to the Capital Market Act’s executive regulations that govern short-selling, Youm7 reports. A committee of FRA consultants suggested that the amended regulations include provisions that allow brokerage and securities firms to offer short-selling. Details are scarce, but we’ve been expecting the amended executive regulations to the Capital Markets Act, which were set to be issued in late April or early May, to introduce mechanisms and rules for short-selling and short-term bonds, alongside a host of other financial instruments, such as sukuk and commodities and futures exchanges.

Daddy, what’s a short seller? To quote the 1985 television commercial, it’s a question a child might ask, but not a childish question. Think of it as making a wager that a share will decline in value. You borrow a share (from your broker, often via a long-term holder of a stock who lends it for a small fee), then sell it right away. You then wait for it to go down before buying it back and returning it to its rightful owner, pocketing the difference between the price at which you sold and at which you bought the share back. The catch? Unlimited downside — and little control over the direction of the stock, unless you’re one of those shorts who uses public pressure to drive down a share price. There is a certain class of investor who loves to short, but it is pretty much the bane of listed companies everywhere.

This short video is probably the most to-the-point explainer we’ve seen on the subject (watch, runtime: 3:00).

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