24 Mar 2009, David Benyon, Operational Risk & Regulation
MADRID - The latest consultation report by the International Organization of Securities Commissions (Iosco) looks at the short-selling regulations put in place or planned by authorities in the wake of controversy over the role of shorting in the collapse of bank share prices.
The report, entitled 'Regulation of short selling', was prepared by Iosco's task force on short selling and lists principles for regulators' consideration to develop a consistent international approach to shorting regulation.
The task force was established by Iosco's Technical Committee in November 2008, in response to a wave of temporary naked short-selling bans and disclosure requirements across the European Union and by the US Securities and Exchange Commission (SEC), in addition to tough sanctions by Australian regulators.
Iosco says it aims to eliminate gaps between regulatory approaches to naked shorting and to minimise negative effects of regulation on legitimate market practices such as lending and hedging securities.
"Iosco believes that short selling plays an important role in capital markets for a variety of reasons, including more efficient price discovery, mitigating price bubbles, increasing market liquidity, facilitating hedging and other risk management activities," says Kathleen Casey, chairman of Iosco's Technical Committee.
"However there is also a general concern that, especially in extreme market conditions such as we have recently experienced, certain types of short selling or the use of short selling in combination with certain abusive strategies may contribute to disorderly markets," she says.
The report can be read here.
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