(Adds further CEO comment)
By Jeffrey Hodgson
HONG KONG, Feb 1 (Reuters) - Hong Kong’s stock market regulator is considering loosening restrictions on short selling to help the territory better compete with financial centres like New York and London, its chief executive said on Thursday.
Easing the restrictions, put in place after the 1997-98 Asian financial crisis, would make Hong Kong’s market more efficient and attractive to global investors, Securities and Futures Commission (SFC) CEO Martin Wheatley told a media briefing.
He said the average daily volume of short selling in Hong Kong was only about 5 percent of total trading, compared with 25 percent or more in the U.S. and London markets.
“Those restrictions are partly the short (on) the uptick rule, they’re partly about stock borrowing, they’re partly about criminal penalties,” he said.
“We need to review all of those, so that we make sure Hong Kong has got as efficient a market as possible so that it can compete on the world stage,” said Wheatley, a former deputy chief executive of the London Stock Exchange.
Hong Kong has faced increased competition in recent years from Singapore, where authorities have worked aggressively to attract fund management firms, particularly hedge funds, to locate in the city state.
Hong Kong imposed short selling restrictions such as the uptick rule, by which the last share price movement prior to a short sale has to be up, after intervening in markets in 1998 to halt a crisis-inspired sell-off.
The rule is designed to prevent short sellers from adding to the downward pressure on a stock which is already falling sharply.
A relaxation of short selling rules would also help Hong Kong better compete against the Shanghai bourse. Short selling of shares is banned in mainland China.
Wheatley said the regulator has also introduced a proposal to loosen restrictions on the trading of futures and options linked to the benchmark Hang Seng Index .HSI.
“That’s an area as well where we need to review position limits and increase the limits. The market’s grown hugely. We need to increase the limits to go along with the size of the market,” he said.
“It’s something we’ve introduced to Legco (Hong Kong’s Legislative Council). We expect to discuss it within the next couple of months.”
The chief executive said the position limits would be reviewed in the first half of the year, while the short-selling restrictions may take longer to review.
The proposals to increase trading flexibility come after the Hang Seng Index fell 2.6 percent from a lifetime high hit on Jan. 24. Last year, the index rose 34 percent.
Wheatley said the regulator would also act on criticism from some in the fund management community that it took too long to process applications and licenses.
“People would like to see rapid response from us, a quick response from us, and we have to respond to that,” he said.