22 June 2009

IOSCO publishes principles for the effective regulation of short-selling

Short-selling should operate in a well-structured regulatory framework, IOSCO recommends. Regulators should have an effective discipline for the settlement of short-selling transactions which includes a strict settlement of failed trades.

IOSCO published its principles for the effective regulation of short-selling. Regulators should have an effective discipline for the settlement of short-selling transactions, IOSCO recommends. As a minimum requirement this should impose strict settlement of failed trades. Furthermore, jurisdictions should consider some form of reporting of short-selling information to the market or to market authorities.

 

The recommendations on effective regulation comprise the following four principles:

(1)  Short-selling should be subject to appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of financial markets.

(2)  Short-selling should be subject to a reporting regime that provides timely information to the market or to market authorities.

(3)  Short-selling should be subject to an effective compliance and enforcement system.

(4)  Short-selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development.

 

The principles will contribute to more consistent global approach to the regulation of short-selling, Kathleen Casey, Chairman of the Technical Committee, said.

 

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