Hedge Funds Finding New Ways to Short

by: David Enke

As reported at a Financial Times Alphaville blog post, hedge funds are looking for new ways to short securities, including everything from shorting index funds and then buying back every security in the index except one, to restructuring swaps to have the same exposure as a short position.

Both techniques will no doubt have an affect on market volatility as more stocks become actively traded. Ironically, derivatives such as swaps, which had their own role in the current financial crisis, are now being used to help get around restrictions imposed as a result of the very same crisis.

Where there is a will, there is a way. Innovation and financial engineering never sleep.

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