The International Organization of Securities Commissions (IOSCO) Technical Committee has published a final report entitled Regulation of Short Selling which contains high level principles for the effective regulation of short selling.
The principles were developed by the Task Force on Short Selling (Task Force) following consultation with regulators and market participants from around the world who were generally supportive of the proposals.
The Technical Committee recommends that effective regulation of short selling comprises the following four principles:
– 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.- Short selling should be subject to a reporting regime that provides timely information to the market or to market authorities.- Short selling should be subject to an effective compliance and enforcement system.- Short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development.
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, says Kathleen Casey, chairman of the Technical Committee.
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, continues Casey.
The development of these principles by IOSCO demonstrates our commitment to helping combat the effects of the current financial crisis and ensuring markets remain fair, efficient and transparent, investors receive adequate protection and systemic risk is reduced.
The full report is available on the official web site of IOSCO.
L.D.