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The report notes that on balance, it appears neither justified nor appropriate to propose prohibition of all forms of short-selling. However, short-selling requires a minimum of regulatory constraint to deter behaviours that hinder orderly functioning of the market, the AMF notes.
Short-selling without minimal rules can generate an artificial imbalance in the market that hinders normal price discovery, the report says. When combined with rumours, short-selling can also foster market abuse. The need, then, is to define the harmful behaviours at issue and identify how to avoid them.
The legislative and regulatory framework ought to arm the regulator with the weaponry needed to deal with a situation of exceptional market turmoil, the report concludes. If only on an emergency basis, the regulator must be able to adopt an exceptional regime.
No matter what criterion is considered, the major disadvantage is that it will affect behaviour by market participants, the AMF states. Therefore, it appears preferable to leave the regulator completely free to assess whether and when a crisis regime should be implemented.
The effectiveness of any such regime necessarily depends on co-operation between the principal market regulators. There is a need to provide a system of information exchange between regulators so that if one of them is compelled by circumstance to implement the exceptional regime, it can count on the help of its counterparts in ensuring compliance.