A 2011 column asked: were MPF-held stocks being lent out for short selling?

In early October 2011, the Hang Seng Index fell for four straight sessions, the worst performance in Asia. Exchange data showed short selling at 14% of market turnover — over 40% including derivatives-related shorting. In a newspaper column, a local brokerage chairman argued the shorting behind the sell-off was highly abnormal, and raised a pointed question: were stocks held by local MPF funds being lent out for short selling?

Why did short selling alarm Hong Kong markets in 2011?

Short selling alarmed Hong Kong markets in 2011 because short positions accounted for an abnormally large share of turnover, rumours spread unchecked, and ordinary investors grew fearful. The column argued that heavyweights were using short selling to distort normal market functioning, so prices no longer reflected reality, while speculators chased outsized short-term gains and unsettled the financial markets.

Three concerns raised in the column

The columnist stressed he was not opposed to short selling as such, but wanted regulators to watch unusual shorting closely, raising three concerns:

1. Transparency: the market had no way of knowing which banks or institutions short sellers borrowed stock from;
2. Motive: whether short sellers were genuinely hedging or simply shorting one-way for profit;
3. Manipulation risk: if stock lenders were connected to derivatives issuers, the activity could amount to serious market manipulation.

Were MPF stocks being lent out?

Because short selling requires borrowing stock, the column specifically asked whether shares held by local MPF funds were being lent out for shorting, and urged the authorities to improve transparency around short-selling activity. It concluded by suggesting financial officials consider following US and European exchanges in temporarily restricting short selling to calm market sentiment.

The piece captured a widespread anxiety of the 2011 sell-off — when markets plunge in succession, what investors want most is to know the rules of the game are still fair.