Short-selling debate becomes two sided

Denver News.Net
Tuesday 30th September, 2008

Volatile markets could have become more erratic due to the ban on short selling.

Shorts add liquidity, which reduces volatility.

A sharply lower market can usually be supported toward the end of trading by short sellers, who use the instrument to protect their equity positions.

But on Monday, when the market fell over 700 points, nearly 1,000 U.S. financial firms were covered under the Securities and Exchange Commission's ban on short selling.

UK regulators temporarily banned shorts on September 18th.

Other countries quickly followed suit in an effort to protect financial stocks said to be targeted by short sellers.

There is debate whether the move worked.

While some investors applauded the measure, others criticized government iinterference in the so-called free market.

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