29 May 2009

ECMI comment on short-selling

The paper explores whether short-selling is legitimate and beneficial to the market and outlines the difference between naked and covered short-selling. It also asks about it’s consistent definition across jurisdictions.

The ECMI Commentary explores whether short-selling is legitimate and beneficial to the market and outlines the difference between naked and covered short-selling. It also asks about it’s consistent definition across jurisdictions.

 

The paper concludes that greater co-ordination is vital to ensure that regulatory interventions achieve some effectiveness. The ban on short-selling did not make much sense if short derivative positions were left uncovered and regulatory arbitrage was allowed. Moreover, the lack of co-ordination among European authorities was breathtaking, the paper states.

 

Also, there is a lack of consensus on how to handle short-selling, even within Europe. Some favour a total ban on naked short-selling; others want a disclosure regime in place; some investors think short-selling should be allowed in all its forms.

 

Third, restricting short-selling is very costly because of the difficulty in defining precisely the banned transactions and the complexity in enforcing such regime.

 

The full paper is attached below.

 

© ECMI