Were MPF funds feeding the short sellers? The MPFA’s 2011 answer: no

In early October 2011, short-selling turnover in Hong Kong stocks surged to more than HK$12 billion, and plenty of investors suspected the borrowed stock was coming from MPF funds. The MPFA moved quickly to ask every MPF trustee — and to clear the air.

Did MPF trustees lend stocks for short selling?

When Hong Kong short-selling turnover surged in October 2011, investors suspected MPF funds were the source of borrowed stock. The MPFA proactively asked all MPF trustees and confirmed that no MPF company had recently lent stocks to investors engaged in short selling — MPF money was not the “ammunition” of the short sellers.

What rules govern MPF stock lending?

Under MPFA rules, MPF companies may lend stocks only if they meet a series of strict conditions:

In other words, even where lending happens, members’ interests must not suffer from it.

Would the government ban short selling?

By mid-October, short-selling turnover had bounced back to HK$7.1 billion — still well below the HK$12 billion-plus of early October. A securities professionals’ association had written an open letter demanding tighter short-selling regulation, but the government said it had no plans to halt short selling for now, moving only to strengthen the disclosure regime.