Short Sellers in Retreat

FT: Shorters Retreat Helps Fuel Volatility

In Depth on Short Selling

Analysts say short sellers have been closing many of their positions in recent weeks. Short interest as a percentage of S&P 500 stocks fell to its lowest level in eight months by mid-August, according to the most recent data. Bespoke Investment Group said average short interest in other major equity indices had fallen to the lowest levels since at least October 2007.

“The US Fish and Wildlife Service may have a new candidate for its endangered species list,” said Paul Hickey of Bespoke. “It’s short sellers.”

Closing short positions has been particularly difficult recently because of low summer volumes. At the same time, trading – which is now dominated by rapid-fire computer systems – has become fragmented across exchanges and various electronic platforms. The result has been agony for short sellers of stock such as AIG, who have been squeezed, in the market place, as they try to buy shares to close their positions. AIG shares has soared 260 per cent since early August.

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