Iosco publishes principles for regulation of short selling

The International Organization of Securities Commissions’ technical committee has published a final report containing high level principles for the effective regulation of short selling. 

The principles were developed by the Task Force on Short Selling following consultation with regulators and market participants from around the world.

The committee recommends that effective regulation of short selling comprises the following four principles:

1. Short selling should be subject to appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of financial markets.
2. Short selling should be subject to a reporting regime that provides timely information to the market or to market authorities.
3. Short selling should be subject to an effective compliance and enforcement system.
4. Short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development.

 Kathleen Casey, chairman of the technical committee, says: ‘Iosco believes that the adoption of these four principles by securities regulators will contribute to the development of a more consistent global approach to the regulation of short selling. The principles strike a balance between maintaining the benefits that short selling contributes to the functioning of markets while ensuring that regulators have the necessary tools to counteract the abusive use of short selling.

‘While Iosco encourages a move towards a more concerted regulatory approach to short selling, it recognises that its regulation will vary from jurisdiction to jurisdiction depending on local circumstances. However, while different regulatory philosophies and approaches will continue to be applied, these principles provide a firm grounding for securities regulators development of their oversight regimes.’