There’s a view that short selling of shares should not be allowed. It’s merely speculation you know, does nothing productive to boost the economy. Well, actually:
NMC Health’s debts are more than double the level previously thought after advisers discovered an additional $2.7bn (£2.1bn) of borrowing that the company’s bosses said they were not told about.
The FTSE 100 hospital operator, whose shares are suspended from trading after a raft of secret loan guarantees were uncovered, said on Monday that some of the newly disclosed loans may not have been used for company purposes.
In the latest of a regular stream of stock market updates into its precarious finances, the Abu Dhabi-based company said: “In addition to $2.1bn group debt reported at 30 June 2019, the company has identified over $2.7bn in facilities that had previously not been disclosed to or approved by the board.”…
The point here being that this investigation was all triggered by a short seller. Who released a report shouting that the accounts of NMC Health were full of – well, full of what bedpans are used to collect.
As it turns out they were right. This is new information, we want people to be digging and finding such new information. If they get it wrong they lose money, if right then they make it. Excellent. But they can only make money if they are allowed to short sell.
Short selling thus provides the incentive for people to uncover corporate malfeasance. And, importantly, rather more money than the company can pay them to not uncover it.
Thus we find the value in allowing short selling – it makes markets more efficient by increasing the information available to them. And why wouldn’t we want that to happen?