Editing Short (finance) (section)

== Regulations ==

=== United States ===
The [[Securities Exchange Act of 1934]] gave the [[Securities and Exchange Commission]] the power to regulate short sales.<ref>{{cite web |url=https://www.sec.gov/about/laws/sea34.pdf |title=Securities Exchange Act of 1934 |year=1934 |publisher=U.S. Securities and Exchange Commission |access-date=11 September 2017 |archive-date=14 January 2012 |archive-url=https://web.archive.org/web/20120114052905/http://www.sec.gov/about/laws/sea34.pdf |url-status=live }}</ref> The first official restriction on short selling came in 1938, when the SEC adopted a rule (known as the [[uptick rule]]) that a short sale could only be made when the price of a particular stock was higher than the previous trade price. The uptick rule aimed to prevent short sales from causing or exacerbating market price declines.<ref name=Lavinio2>{{cite book |url=https://books.google.com/books?id=pGs-GBn8-k0C&pg=PA86 |title=The Hedge Fund Handbook: A Definitive Guide for Analyzing and Evaluating Alternative Investments |last=Lavinio |first=Stefano |year=1999 |publisher=McGraw-Hill |pages=85–95 |isbn=978-0071350303}}</ref> In January 2005, The Securities and Exchange Commission enacted [[Regulation SHO]] to target abusive naked short selling. Regulation SHO was the SEC's first update to short selling restrictions since the uptick rule in 1938.<ref name=Singh>{{cite book |url=https://books.google.com/books?id=_FUoBlN8p_EC&pg=PA122 |title=Bank Regulations |author=S.K. Singh |year=2009 |publisher=Discovery Publishing House |pages=122–123 |isbn=978-8183564472}}</ref><ref>{{cite web|url=https://www.sec.gov/spotlight/keyregshoissues.htm|title=Division of Market Regulation: Key Points about Regulation SHO|date=11 April 2005|author=U.S. SEC|access-date=11 September 2017|archive-date=3 February 2023|archive-url=https://web.archive.org/web/20230203054802/https://www.sec.gov/investor/pubs/regsho.htm|url-status=live}}</ref>

The regulation contains two key components: the "locate" and the "close-out". The locate component attempts to reduce [[failure to deliver]] securities by requiring a broker possess or have arranged to possess borrowed shares. The close out component requires that a broker be able to deliver the shares that are to be shorted.<ref name=Lavinio2/><ref name=Young>{{cite book |url=https://books.google.com/books?id=TM-_yRzNx3cC&pg=PA178 |title=The Complete Guide to Selling Stocks Short: Everything You Need to Know Explained Simply |last=Young |first=Matthew G. |year=2010 |publisher=Atlantic Publishing Group Inc. |pages=178–179 |isbn=978-1601383266}}</ref> In the US, [[Initial public offering|initial public offers]] (IPOs) cannot be sold short for a month after they start trading. This mechanism is in place to ensure a degree of price stability during a company's initial trading period. However, some [[brokerage firm]]s that specialize in [[penny stock]]s (referred to colloquially as [[Bucket shop (stock market)|bucket shops]]) have used the lack of short selling during this month to [[pump and dump]] thinly traded [[Initial public offering|IPOs]]. Canada and other countries do allow selling IPOs (including U.S. IPOs) short.<ref>{{cite book |url=https://books.google.com/books?id=pQtdJqdpzUoC&pg=PA233 |title=Security Analysis with Investment and Portfolio Management |author=Mahipal Singh |publisher=Gyan Books |year=2011 |page=233 |isbn=978-8182055193}}</ref>

The Securities and Exchange Commission initiated a temporary ban on short selling of 799 financial stocks from 19 September 2008 until 2 October 2008. Greater penalties for naked shorting, by mandating delivery of stocks at clearing time, were also introduced. Some state governors have been urging state pension bodies to refrain from lending stock for shorting purposes.<ref>{{cite news |url=https://www.bloomberg.com/apps/news?pid=20601087&sid=aTHLqfgpnFYw&refer=home |title=Short Sellers under Fire in U.S., U.K. After AIG Fall |date=19 September 2008 |publisher=Bloomberg News |first=Michael |last=Tsang |access-date=11 March 2017 }}</ref> An assessment of the effect of the temporary ban on short-selling in the United States and other countries during the [[2008 financial crisis]] showed that it had only "little impact" on the movements of stocks, with stock prices moving in the same way as they would have moved anyhow, but the ban reduced volume and liquidity.<ref name="Oakley"/>

=== Europe, Australia and China ===
In the UK, the [[Financial Services Authority]] had a moratorium on short selling of 29 leading financial stocks, effective from 2300 [[GMT]] on 19 September 2008 until 16 January 2009.<ref>{{cite news |title=FSA clamps down on short-selling |url=http://news.bbc.co.uk/1/hi/business/7624012.stm |publisher=BBC News |date=18 September 2008 |access-date=4 January 2010 |archive-date=22 January 2009 |archive-url=https://web.archive.org/web/20090122090617/http://news.bbc.co.uk/1/hi/business/7624012.stm |url-status=live }}</ref> After the ban was lifted, [[John McFall, Baron McFall of Alcluith|John McFall]], chairman of the Treasury Select Committee, [[House of Commons of the United Kingdom|House of Commons]], made clear in public statements and a letter to the FSA that he believed it ought to be extended. Between 19 and 21 September 2008, Australia temporarily banned short selling,<ref>{{cite news| url=http://www.theaustralian.com.au/stockbrokers-feeling-the-squeeze/story-fna7dq6e-1111117638688| title=The Australian | date=2 October 2008}}</ref> and later placed an indefinite ban on naked short selling.<ref>{{cite news | url=http://news.smh.com.au/business/asx-ban-on-short-selling-is-indefinite-20081003-4t16.html | work=The Sydney Morning Herald | title=ASX ban on short selling is indefinite | date=3 October 2008 | url-status=dead | archive-url=https://web.archive.org/web/20081005040752/http://news.smh.com.au/business/asx-ban-on-short-selling-is-indefinite-20081003-4t16.html | archive-date=5 October 2008 }}</ref> Australia's ban on short selling was further extended for another 28 days on 21 October 2008.<ref>{{cite web |url=http://www.asic.gov.au/asic/asic.nsf/byheadline/08-210+ASIC+extends+ban+on+covered+short+selling?openDocument |title=Australian Securities and Investments Commission – 08-210 ASIC extends ban on covered short selling |publisher=Asic.gov.au |access-date=24 May 2012 |archive-url=https://web.archive.org/web/20120320173610/http://www.asic.gov.au/asic/asic.nsf/byheadline/08-210+ASIC+extends+ban+on+covered+short+selling?openDocument |archive-date=20 March 2012 |url-status=dead}}</ref> Also during September 2008, Germany, Ireland, [[Switzerland]] and Canada banned short selling of leading financial stocks,<ref name="NBR_35494">{{cite news |url=http://www.nbr.co.nz/article/australian-short-selling-ban-goes-further-other-bourses-35494 |title=Australian short selling ban goes further than other bourses |author=McDonald, Sarah |date=22 September 2008 |work=[[National Business Review]] |access-date=9 November 2011 |archive-url=https://web.archive.org/web/20110927054436/http://www.nbr.co.nz/article/australian-short-selling-ban-goes-further-other-bourses-35494 |archive-date=27 September 2011 |url-status=dead}}</ref> and France, the [[Netherlands]] and [[Belgium]] banned naked short selling of leading financial stocks.<ref>{{cite news |last=Ram |first=Vidya |title=Europe Spooked By Revenge of the Commodities |url=https://www.forbes.com/markets/2008/09/22/briefing-europe-update-markets-equity-cx_vr_0922markets12.html |archive-url=https://web.archive.org/web/20080922213046/http://www.forbes.com/markets/2008/09/22/briefing-europe-update-markets-equity-cx_vr_0922markets12.html |url-status=dead |archive-date=22 September 2008 |work=Forbes |date=22 September 2008}}</ref> By contrast with the approach taken by other countries, Chinese regulators responded by allowing short selling, along with a package of other market reforms.<ref>{{cite news |last=Shen |first=Samuel |title=UPDATE 2-China to launch stocks margin trade, short sales |url=https://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSSHA10179120081005 |agency=Reuters|date=5 October 2008 |access-date=2 July 2017 |archive-date=5 June 2021 |archive-url=https://web.archive.org/web/20210605183647/https://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSSHA10179120081005 |url-status=live }}</ref> Short selling was completely allowed on 31 March 2010, limited to " for large blue chip stocks with good earnings performance and little price [[volatility (finance)|volatility]]."<ref>{{Cite journal|last1=Li|first1=Rui|last2=Li|first2=Nan|last3=Li|first3=Jiahui|last4=Wu|first4=Chongfeng|date=2018|title=Short selling, margin buying and stock return in China market|url=https://onlinelibrary.wiley.com/doi/abs/10.1111/acfi.12229|journal=Accounting & Finance|language=en|volume=58|issue=2|pages=477–501|doi=10.1111/acfi.12229|s2cid=157725706|issn=1467-629X|access-date=26 February 2021|archive-date=5 June 2021|archive-url=https://web.archive.org/web/20210605183640/https://onlinelibrary.wiley.com/doi/abs/10.1111/acfi.12229|url-status=live}}</ref> However, in 2015, short selling was effectively banned due to legislative restrictions on borrowing stocks following the [[2015–2016 Chinese stock market turbulence|stock market crash the same year]].<ref>{{Cite news|last=Chatterjee|first=Nathaniel Taplin, Saikat|date=2015-08-04|title=China stock exchanges step up crackdown on short-selling|language=en|agency=Reuters|url=https://www.reuters.com/article/us-china-markets-shorting-idUSKCN0Q909E20150804|access-date=2021-02-26|archive-date=27 May 2021|archive-url=https://web.archive.org/web/20210527100002/https://www.reuters.com/article/us-china-markets-shorting-idUSKCN0Q909E20150804|url-status=live}}</ref>