The regulation of short sales: a politicised topic

This paper considers the IOSCO principles on short selling regulation, and applies these to the regulations in place the US, the EU, and Hong Kong. The paper argues that practice of short selling is beneficial for markets, and that the justifications for (particularly) permanent restrictions do not stand up to rigorous scrutiny. It suggests that politics is often the key factor shaping its regulation, and that regulators tend to respond to such interests, producing a lack of international convergence with respect to the laws in existence around the world. Short selling is undoubtedly a sensitive topic, but if it is to be regulated, it merits implementing and enforcing global rules. This is unrealistic, but so are the inconsistent, go-it-alone approaches currently adopted by IOSCO’s members.