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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
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.