Short-selling: when is regulatory action warranted?

HOW should regulators deal with short-selling attacks, if at all? It's not an easy question to answer. There is hardly ever any clamour for regulatory intervention when strong "buy" reports with sky-high target prices send stocks shooting up. But there are always calls for gatekeepers to take action when a short-seller swoops into the market with a sell that (a) uses inflammatory language to make sensational claims about the target being worth much less than the current market; (b) causes worry and panic; and (c) is usually aimed at a high-priced stock that everyone thought was financially solid.

The reason for this disparity in the way buys and sells are perceived is, of course, purely emotional - rising prices are comforting because of their wealth enhancement, while crashing prices bring dismay, wealth destruction and, inevitably, calls for justice to be served.

In Singapore, regulators have not acted in the admittedly small number of sensational short-selling cases encountered by the local market over the past few years. This could be because although short-sellers are viewed by some quarters as market pariahs, there is reason to view them as part of the market's ecosystem. If so, then they have every right to voice their opinions as anyone else.