Data Brief - "No Shorts" Not Just Financials

"No Shorts" Not Just Financials

Wednesday, September 24, 2008

There is quite a bit of confusion among traders about the SEC's "no short" list of stocks that cannot be shorted. Seemingly every day, the regulator adds stocks to the list that don't seem to fit the original intention of the order.

It isn't just the US, however. We've seen an increasing number of countries instituting similar bans, in an international attempt at stemming the tide of selling pressure. Whether it actually works or not is extremely questionable (almost certainly not), but that's not stopping them from trying.

Bloomberg recently created several new indices that track the various no-short lists. Below is a series of pie charts showing the sector allocation among each country's list of non-shortable securities.

As you can see, the US isn't the only country straying away from strictly financial firms. While many companies are lobbying to be included based on some loose definition of finance-related activity in some arm of the company, other countries actually have more non-financials than financials on their list.

That is primarily due to the makeup of the companies in each country. Australia, for example, is commodity-heavy, so we see a majority of Materials stocks not available for shorting. Taiwan is tilted towards technology, thus the big focus there. Same with Energy in Russia.

So we shouldn't be surprised to see more and more firms included on the US list, many of which have tenuous ties (or none at all) to finance. With Info Tech currently the largest sector of the S&P 500 (at nearly 16%), it wouldn't be a stretch to see more technology-related firms lobbying the SEC for inclusion on their list.