Short Selling Regulation after the Financial Crisis –First Principles Revisited

This article examines the recent regulatory developments with regard to shortselling. Short selling regulation is an important factor in firm governancebecause it affects the way in which firms are subject to market discipline. Asthe financial crisis has attracted regulators’ notice to short selling once again,it is important to understand the fundamental legal and economic argumentsregarding short selling. These arguments have at their core the question ofwhether there exists a market failure. The available evidence on balancesuggests that short selling restrictions hamper the price discovery process.Also, while regulations against market abuse are required, it is often anineffective detour to pursue the goal of fair markets through the regulation ofshort selling.[...]