What is naked short selling? Under what circumstances will naked short selling occur? First of all, "naked short selling" is a concept aimed at the stock market, which refers to an investment in which investors directly sell positions that do not exist in the market without borrowing shares, and then buy back shares for profit after the stock price falls. This method does not borrow securities in advance, but sells non-existent positions, which may be thrown out in large quantities, thus causing a serious impact on the stock price and increasing the downside risk accordingly.
Short selling in the futures market is a completely different concept. Short selling in the futures market is basically for three investment purposes: 1. It is expected that the index price will go down and the futures contract will be sold directly; 2. Avoiding spot hedging risk in futures market based on hedging demand: 3. Looking for spot arbitrage opportunities through the combination of spot bulls and futures bears.
When unilateral speculators participate in futures short selling, they will build positions by establishing counterparties with many parties, and will not unilaterally create new contracts; Hedging traders have cash in hand while throwing out futures contracts, and the purpose of investment is to preserve value, which will not only increase market risk, but will promote the marketization of futures; Spot arbitrage trading also operates in both futures and spot markets, and seeks risk-free arbitrage space by tracking the change of basis. The purpose of investment is risk-free rate of return, which will not cause drastic market fluctuations, but will promote the futures market to return to the spot market. Therefore, whether it is speculation, hedging or arbitrage, short selling of futures refers to contracts delivered at a specific time in the future, all of which are counterparties with the buyer and are neutral to the market as a whole.
Besides having a neutral influence on the market, the existence and trading of stock index futures market is of great significance to the spot market. First of all, the stock index futures market provides a hedging place for spot positions, and investors can avoid the downside risks of spot positions through hedging transactions; Secondly, the stock index futures trading implements margin trading, and only when sufficient margin is paid can the position be opened; Once the margin is insufficient, it must be fully recovered to ensure the stability of the trading process. Moreover, the system of compulsory liquidation and compulsory lightening also avoids the default risk after the customer's margin is insufficient; Third, the leverage effect of stock index futures trading enables investors to avoid the risk of spot positions at a lower cost, thus increasing the efficiency of capital utilization and improving market activity, and also providing a market-oriented environment for arbitrage and speculative traders to participate in the market.
Because of the high risk of naked short selling, naked short selling is prohibited in many countries. Although China's A-share market implements T+ 1 settlement, it can participate in short selling, but no institution or individual is allowed to sell stocks that are not held in the account, so there is no naked short selling in the spot market. From this point of view, the statement that "naked short selling is forbidden" has no theoretical and factual basis.
Looking back at the changes in regulatory policies during the decline of US stocks in 2008, the regulatory authorities only stipulated naked short selling, but did not restrict futures short selling. At the same time, at the most severe moment of the crisis, the trading volume and positions of futures index rose instead of falling, which provided liquidity for the market, released the downside risks of the market and avoided the further spread of the crisis.