Will short-selling index futures will be banned in a financial panic?

Discussion in 'Index Futures' started by learner88, Jan 18, 2018.

  1. learner88

    learner88

    During the 2008 financial crisis, SEC banned short-selling in financial stocks. Throughout financial history, short-sellers get the stick from regulators during financial panics. Short sellers at that time did not expect such a thing can happen because allowing short-selling is important for hedging purposes.

    Is it a reasonable risk that short-selling index futures will be banned in the next financial crisis? What will be the impact and risks to index futures traders if short-selling index futures were banned in a financial crisis? What are some risk management measures that you would take in the event of a ban?
     
    Last edited: Jan 18, 2018
    murray t turtle likes this.
  2. Go long
     
    murray t turtle and Overnight like this.
  3. Robert Morse

    Robert Morse Sponsor

    No, that is not "reasonable" to assume or likely. That is not the way the CME works. If they wanted to reduce short selling a future, they would just increase the margin requirement until specuation is reduced. That has always been their process. Move the ES futures margin from just over $5K to $10K, that will have a big effect.
     
  4. speedo

    speedo

    CME Group U.S. equity index price limits (and corresponding CME and CBOT rules) are designed to coordinate with circuit breakers provisions as applied by the New York Stock Exchange (NYSE).

    • 7%, 13%, and 20% price limits are applied to the futures fixing price and are effective from 8:30 a.m. CT – 3:00 p.m. CT. Mondays through Fridays.
    • 5% up-and-down limits are effective 5:00 p.m. - 8:30 a.m. CT. Sundays through Fridays; and 3:00 p.m. - 4:00 p.m. CT, Mondays through Fridays. Between 3:00 p.m. - 4:00 p.m. the 5% price limit will not be allowed to breech the 20% daily limit.
    • The fixing price is the volume weighted average price, VWAP, calculated during the 30 seconds of trading from 2:59:30 p.m. – 3:00:00 p.m. CT. View Equity Index Fixing Prices page
     
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  5. Bobbybax

    Bobbybax

    Without a 'short' a future doesn't exist.
     
    curiousGeorge8 likes this.
  6. Bobbybax

    Bobbybax

    If initiating shorts were banned then the only possible sellers are people who are already long. But, potential buyers include longs and shorts. When a long sells to a long open interest stays the same. When a long sells to a short OI declines. By looking at OI and daily volumes the half=life of spoos OI would easily be <24 hours.
     
  7. speedo

    speedo

    The futures market is not the stock market, it is driven by hedging and speculation, without a bi-directional trade, there is no market.
     
  8. JackRab

    JackRab

    They stopped short selling in financial stocks because it was starting to undermine trust in the banking and entire financial system, up to the point where bank to bank lending was impacted massively due to one bank dropping more in stock value than the other...

    They tried at least to limit nett short exposure in financial stocks so speculators weren't driving them down, creating these trust issues... whether based on facts or rumours.

    Short selling in stocks that are not a pillar to the financial system will not be blocked I think. There might be a back-stop in case of a company with a large social impact... like it happened with the car-industry... that basically happens all the time through government 'hand-outs'. But a collapse of one of those stocks isn't necessarily going to impact the system.

    Since futures are broader market, shorting them will not single out one or two companies. Though technically you could short the future and buy all underlying stocks, except for those few you want to short.... but that would mean you're nett short those few stocks... and that was not allowed with the short-selling ban.
     
    murray t turtle likes this.
  9. %%
    True;
    that +many longs did not want them also LOL. I rememeber the SEC tried to stay out of it; but he finally gave in, i remember he did not want to interfere.Like one short said as he shorted C for a big trend ''fundamentals win in the end'':caution::caution::cool::D