Extraordinary market conditions demand not only decisive but
also effective actions by financial regulators. So was the
FSA's ban on UK short selling, introduced without notice or
consultation, an effective regulatory response or a measure
more concerned with public opinion?
A gulf exists between the views of market professionals and
the general public on the merits of short selling.
Professionals know that short selling promotes trading
liquidity and the correction of false (over-valued) market
prices. The public consider that selling securities you do not
own is the cause of price falls and the odious practice of
spivs and speculators who seek to profit from the misfortune of
others. Regulators and lawyers will agree, though, that short
selling can be associated with market abuse when false rumours
are spread or a group of sellers deliberately conspires to dump
stock, and that short selling in these circumstances is
Short selling doesn't...