July 2010

LSEG Response to the European Commission’s Consultation on Short Selling

The London Stock Exchange Group has responded the European Commission’s Consultation on Short Selling.   Short selling is deeply embedded in all financial markets and is intrinsic to their efficiency.  In particular, short selling provides a key benefit to investors, including many pension funds as well as companies seeking capital, by increasing market liquidity and helping to mitigate overpricing bubbles.  This in turn delivers benefits, in the form of innovation and jobs for the wider economy. 

We are strongly of the view that the Commission should adopt an evidence-based approach to the development of proposals in this area.  The consultation implies that the Commission has already identified damage caused by short selling but it does not present evidence to support these conclusions and, therefore, justify regulatory action.  In contrast, our evidence suggests that banning or restricting short selling actually increases volatility, which undermines liquidity and increases costs for investors and companies, thereby dampening innovation and growth.

Downloads
LSEG Response to Commission CP on Short Selling 9 July 2010 (file pdf - 7 MB)