Advent of short selling marks growing maturity of the WSE
"Right now we are in the final stage of the project," Socha told the Business Journal. "It will be completed in three to four months." Socha added that short selling will preceed futures contracts on individual stocks. "When? When the market is ready for that," Socha said.
The move will give investors yet another financial tool for managing risk, the array of which the WSE has tried to expand in recent years. At the same time, the commission's willingness to allow short selling is a further sign of maturity for the eight-year-old stock exchange, market watchers said.
"This is a natural next step in the development of the Polish capital market," said Leslaw Paga, managing partner of Deloitte & Touche and former president of the Securities Commission. "It is something we could expect for some time."
Legal issues have not prevented the introduction of short selling in the past, Paga said, rather the market was not developed enough to allow it. Short sales would be pointless if exchange volume was not high enough to support it, he said.
"We also had to wait for investors to mature," said Paga. "Not everybody had the same experience on capital markets."
To date, investors on the WSE take long positions, buying shares in stocks on the assumption that shares prices will rise, typical of bull or rising markets. Short selling, on the other hand, is based on the assumption that a stock's price will drop. In this way, too, short sales can also set a floor for stock price declines and thus provide a hedge against downside risk.
"So far we've had instruments to be applied during bullish periods," said Piotr Dubno, adviser to the Finance Minister on capital markets. "The short sale is an instrument for bear periods."
Till now, investors could make money buying shares cheap and selling them high, added Janusz Ryfka, deputy director of the asset management department at CDM Pekao Securities. "But one can also make money on the market going down," he said.
And on shares you don't own, added Piotr Goralewski, public market office director in COK Banku Handlowego.
If an investor expects that share prices will go down, he can borrow shares from a brokerage house for a given time period and sell them immediately on the market. When the price drops, he buys the shares back, hands them over to the broker and pockets the gain from the selling high and later buying low strategy. "Let's say you borrow the shares of company X when they are traded at zl. 10 and sell them immediately for this price," said Ryfka. "When the price goes down to zl. 5 you buy them and give them back to the brokerage house. This way you made zl. 5 on each share." In addition to a speculative tool, the short sale also counters dramatic price drops mainly because it establishes a group of investors willing to buy shares when their price is low, Ryfka added.
Portfolio investors with relatively large blocks of shares can use short selling as a hedging instrument, said Adam Kalkusinski, salesman with Wood & Co.
The move will give investors yet another financial tool for managing risk, the array of which the WSE has tried to expand in recent years. At the same time, the commission's willingness to allow short selling is a further sign of maturity for the eight-year-old stock exchange, market watchers said.
"This is a natural next step in the development of the Polish capital market," said Leslaw Paga, managing partner of Deloitte & Touche and former president of the Securities Commission. "It is something we could expect for some time."
Legal issues have not prevented the introduction of short selling in the past, Paga said, rather the market was not developed enough to allow it. Short sales would be pointless if exchange volume was not high enough to support it, he said.
"We also had to wait for investors to mature," said Paga. "Not everybody had the same experience on capital markets."
To date, investors on the WSE take long positions, buying shares in stocks on the assumption that shares prices will rise, typical of bull or rising markets. Short selling, on the other hand, is based on the assumption that a stock's price will drop. In this way, too, short sales can also set a floor for stock price declines and thus provide a hedge against downside risk.
"So far we've had instruments to be applied during bullish periods," said Piotr Dubno, adviser to the Finance Minister on capital markets. "The short sale is an instrument for bear periods."
Till now, investors could make money buying shares cheap and selling them high, added Janusz Ryfka, deputy director of the asset management department at CDM Pekao Securities. "But one can also make money on the market going down," he said.
And on shares you don't own, added Piotr Goralewski, public market office director in COK Banku Handlowego.
If an investor expects that share prices will go down, he can borrow shares from a brokerage house for a given time period and sell them immediately on the market. When the price drops, he buys the shares back, hands them over to the broker and pockets the gain from the selling high and later buying low strategy. "Let's say you borrow the shares of company X when they are traded at zl. 10 and sell them immediately for this price," said Ryfka. "When the price goes down to zl. 5 you buy them and give them back to the brokerage house. This way you made zl. 5 on each share." In addition to a speculative tool, the short sale also counters dramatic price drops mainly because it establishes a group of investors willing to buy shares when their price is low, Ryfka added.
Portfolio investors with relatively large blocks of shares can use short selling as a hedging instrument, said Adam Kalkusinski, salesman with Wood & Co.
