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Turkey considers easing ban on short selling

Turkey's finance minister Mehmet Şimşek said the ban on short selling domestic stocks is under review Zakariya Yahya/Imageslive/Zuma/Alamy via Reuters
Turkey's finance minister Mehmet Şimşek said the ban on short selling domestic stocks is under review
  • Ban after 2023 earthquakes
  • Local market would benefit
  • Good for foreign investment

Turkey may partly lift a ban on short selling domestic stocks, a policy initiated almost two years ago, in an attempt to woo foreign investors back to the nation’s share market and reverse a capital exodus. 

Speaking at the Brookings Institution in Washington DC on October 25, Turkish treasury and finance minister Mehmet Şimşek said the ban on short selling was one of a number of reforms under review.

“We are considering lifting the short selling ban on the BIST 50,” he told international investors and finance leaders. BIST 50 is one of the key blue chip indexes on the Borsa Istanbul.

Turkey implemented a total ban on all short selling – by which investors borrow stock in anticipation of their value falling, sell them on, and then rebuy them at a lower rate – in the wake of the twin earthquakes in February 2023, which left more than 50,000 dead and caused massive damage to residential, commercial and industrial property. 

Estimates of the cost to the Turkish economy of the earthquakes run between $84 billion to $104 billion, including replacing housing stock and infrastructure and loss of production and national income. 

Following the quakes, there was a run on the Istanbul exchange, with sharp losses across equity markets, prompting authorities to institute the ban.

The local market would welcome the move to ease short selling restrictions, which should also see an increase in foreign capital inflows, portfolio manager Hande Eğilmez Eniş told AGBI

“It will depend on how the ban is lifted and whether it is only on BIST 50,” she said. “Even that would have a positive impact since it would increase liquidity.”

However, any lifting of the ban would need other measures to be introduced, Eniş said, such as restrictions on reselling shares, meaning a buyer cannot immediately sell at the active price but can only sell at a higher rate. 

Turkey has had an on and off relationship with short selling, with regulator the Capital Markets Board instituting a partial ban on the practice in 2020, after banning shorting on seven shares in October the previous year. Restrictions were lifted later in 2020, only to be reimposed following the February 6 quakes last year.

Any easing of the ban, even if limited to the BIST 50, could help reverse the drift of foreign investment away from the Istanbul exchange. 

According to data compiled by news agency Bloomberg, the value of Turkish stocks held by foreign investors had dwindled to around $31 billion by mid-October, down from $42 billion in May.

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