The European Securities Markets Expert Group (ESME) has published a report setting out its position on short selling.
ESME’s conclusions are:
- Short selling plays an integral part of the proper functioning of the equities market and is a legitimate investment technique.
- Permanent short selling restrictions are not necessarily effective as measures to address volatility and adversely impact markets and participants.
- Regulators should have the ability to impose measures in extreme market circumstances without the requirement for lengthy pre-consultation.
- There should be different levels of regulation, starting with restrictions on naked short selling.
- However, the impact of such measures should be fully and carefully considered with respect to their market impact and appropriateness to the specific situation prior to their implementation.
- Any future rules and regulations should be based on a common international understanding of basic principles and technicalities.
- Less interventionist measures may be more effective in addressing potential concerns regarding short selling and increasing market transparency.
- Any alternative measures should be considered on a ‘cost-benefit’ basis.
- Procedures for addressing late settlements would make markets operate more efficiently and address some concerns regarding the market impact of 'naked' short selling.
View IOSCO consultation on short selling, (PDF 401KB), 19 March 2009