SEC Proposals to Curb Short Selling

The U.S. SEC earlier this week announced a set of proposals to curb short selling. One the one hand, it is argued by proponents of short selling (primarily institutional investors such as hedge funds) that such activity helps contribute to market efficiency. On the other hand, opponents of the idea (primarily companies and their managements) decry short sales as accelerating the decline of stocks in difficult market condition with the additional concern that the practice could lead to market manipulation. For a description of the short selling process and the legal position in India, please see a previous post on this Blog.

As discussed on the Harvard Corporate Governance Forum, SEC has made 5 proposals to revive restrictions on short sales in equity securities. Comments are due within 60 days, and this issue is bound to generate a significant amount of debate. As SEC’s new Chairwoman Mary Schapiro notes: “Clearly, the practice of short selling has both strong supporters and detractors.”