Short Selling in a Financial Crisis: The Regulation
of Short Sales in the United Kingdom and the
United States
Katherine McGavin
Northwestern Journal of International Law & Business, 15 December 2010
In a well-regulated market with minimal risk of abuse, the liquidity
and information efficiency benefits of short selling far outweigh its
potential harm. Contrary to the recent hostility short sellers face from
market regulators and the popular press,’ short sellers in aggregate are
neither market villains nor agents of destruction. While a small minority of
short sellers have exploited lax regulation and inattentive enforcement of
anti-abuse rules to manipulate stock prices and earn substantial fees, these
rare episodes suggest that the world’s major capital markets need better
enforcement of existing rules and not new rules per se. The failure of
market regulators to prevent abuse and manipulation of stock prices by short sellers and curb naked short selling reflects a failure of enforcement,
not bad underlying policy.
PDF (41 pages): Short Selling in a Financial Crisis: The Regulation
of Short Sales in the United Kingdom and the
United States
