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In Paris at its regularly scheduled meeting last week, the Board of Directors of the World Federation of Exchanges (WFE) issued a statement on the short-selling bans implemented on many markets as emergency measures last September.
Various analyses have concluded that the bans did not solve the problem of slowing the fall in securities and contract prices, as was intendedi. Furthermore, the uncertainty created by the implementation of these bans may have had a negative impact on liquidity and the normal functioning of markets. In particular, it appears that spreads in banned stocks widened, depth of market deteriorated, and trading volumes in banned stocks declined more than in other securities not affected by the bans.
The WFE Board of Directors considers short-selling to be a well established market mechanism, which contributes to their liquidity and efficiency. It should be conducted subject to regulations which enhance the public’s confidence in exchanges.
Rules governing short-selling should include borrowing and delivery requirements, and should be strictly enforced. All short-selling transactions should comply with rules prohibiting market manipulation.
WFE is the association of 51 regulated exchanges around the world. It develops and promotes standards in markets.
