(Adds further CEO comment)
By Jeffrey Hodgson
HONG KONG Feb 1 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
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
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
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.