This article was originally published 23 July, 2009

This update highlights a number of important developments regarding the regulatory framework for the short-selling of securities.

At the international level – and in the European Union (EU), in particular - significant progress is being made towards the harmonisation of individual jurisdictions' short-selling regulations.

In the UK, the existing temporary rules on disclosure of short positions have now been extended again, and work is underway to implement a permanent regime (which is expected to be significantly broader, in some respects, than at present).

IOSCO's Principles – A Framework For Regulators Globally

In a report published in June 2009, IOSCO (International Organization of Securities Commissions) proposed four high-level principles for effective regulation of short-selling, intended to guide individual regulators in the formulation of their own rules. The principles state that there should be:

  • appropriate controls to avoid the risks that could interfere with the functioning and stability of the markets (e.g. permitting short-selling only of specified eligible securities, prohibiting "naked" shorting, controlling pricing, or providing for settlement of failed trades);
  • a requirement to report relevant trades to the market or, at least, to a regulator;
  • effective monitoring and enforcement; and
  • appropriate exceptions (e.g. for market-makers).

IOSCO's principles have no binding effect, but aim to establish a sensible framework for development of specific national rules.

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