London, (Samajweekly) Recent global bans on short-selling are damaging markets and failing to achieve their desired effect, a global industry group for exchanges and central counter-party clearing houses or CCPs said.
According to the World Federation of Exchanges, unlike circuit breakers and other safeguards put in place by exchanges to slow markets down in times of stress, short-selling bans inhibit orderly markets rather than promote them.
At present, circuit breakers allow participants time to assimilate information, with the effect of making trade-execution decisions more informed, whereas short-selling bans, by contrast, prevent market participants trading as effectively as possible, thereby making price information less accurate.
“Banning short-selling interferes with price formation, thereby increasing uncertainty. That can only artificially amplify volatility and probability of default, the opposite effect to that claimed, and hampers the ability of markets to serve the real economy,” WEF CEO Nandini Sukumar said in a statement.
“It is not – and never has been – true that bans have any other, positive effect on market activity or price levels.”
As per the WEF, recent statements from global authorities point to the difficult environment in which to price securities and derivatives as making it more important to keep markets open – not less.
