Hong Kong Securities and Futures Commission Chief Executive Martin Wheatley said current rules were already sufficient and noted short selling volume in the territory was less than a third of that in the US and UK markets.
'We have an effective short selling regime in Hong Kong, people are prohibited from doing naked short selling. Our view is that short selling is a beneficial component of a well run market,' he told a fund industry conference.
'If Hong Kong became a target for abuse we'd act very quickly. If short selling increases from 8 per cent (of market volume) or if we see significant settlement failures, we will act.'
'Naked' short selling takes place when shares are sold without being borrowed first.
Asian hedge fund managers have been waiting with dread to see if tough new short selling restrictions sweep across the region after Australia and Taiwan joined US and UK regulators in cracking down on the practice.
Industry executives said regulators in other Asian markets could feel pressure to follow suit and they fear big Western hedge funds and other short sellers would target the few remaining markets where the practice is not banned outright.
Hong Kong took a small step to toughen rules on Friday when it said it would double the financial penalty on short sellers who fail to settle trades.
'If we do see any abuses in our market we will take strong and decisive action,' Mr Wheatley told reporters after his speech.
'The level of settlements in Hong Kong is very good. On average, 99.7 per cent of all trades are settled. One of the abuses in short selling is that people short sell and then don't settle.'
The regulator also said on Friday it would hold off on previously announced plans to change the territory's 'tick' rule.
The rule bars short sales below the best current ask price and limits the ability of short sellers to build positions in a falling market.
By comparison, US regulators have imposed an outright ban on shorting the stocks of hundreds of companies. UK regulators also imposed a temporary ban on short-selling financial stocks.
Australia joined the trend with a ban on covered short selling, in which the seller is first required to first borrow the stock. It later eased the ban slightly for dual-listed stocks. Taiwanese regulators reimposed a ban on short-selling shares in 150 top companies. -- REUTERS