How China Cut-Off Short Selling

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During his recent interview on The Acquirers Podcast with Tobias, Vivek Viswanathan, portfolio manager of the Rayliant Quantamental China Fund discussed How China Cut-Off Short Selling. Here’s an excerpt from the interview:

Vivek: In 2015, they effectively cut off short selling. The way they did that is by telling brokers– Well, first of all, they punish what they call some malicious short sellers. This was during that big crash in 2015. Market went up, crashed. They then blamed malicious short sellers, and they highly encouraged brokers to not lend shares and not allow people to lend shares. That basically stopped short selling for quite a while.

They’ve only recently started reintroducing it. There’s actually quite a spike. Short selling is accelerating quite a bit. But you’ll see a lot of these changes. They’re still figuring things out. But it’s a fairly young market, the Shanghai and Shenzhen exchanges were founded in 1990, 1991 respectively. These are not old markets. They’re quite young. The regulator’s still feeling things out a little bit. You see that manifest in the rules. There are somewhat frequent rule changes.

But one benefit is that because they’re risk averse, they require a lot of disclosures. They want firms to disclose a lot of information, they want exchanges to disclose a lot of information. That’s how they feel that– They want to protect their investments. The China A-shares investors are generally within China. On average, the ownership is not foreign, it’s within the borders, and so they care a lot about protecting those investors and so force a lot of disclosures, those disclosures are extremely valuable. They provide so much information, and so that aspect of the regulatory environment is quite nice.

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