World Federation of Exchanges embraces the suspension of the ban on short selling

The World Federation of Exchanges (WFE), the global industry group for exchanges and CCPs welcomes the decision to remove the short selling bans across Europe and endorses the authorities’ efforts to return to normal operations of fair and orderly markets in the region.

Financial regulators worldwide put in place emergency procedures in response to the high market volatility resulting from Covid-19 outbreak in March, focusing on short-selling of certain financial instruments. Today the European Securities and Markets Authority (ESMA) noted and endorsed the decision of member authorities of Austria, Belgium, France, Greece and Spain to withdraw their restrictions.


WFE published a paper reviewing the academic literature on short-selling and short-selling bans, comparing the arguments against banning short-selling with the arguments in favour. “What does academic research say about short-selling bans?” almost unanimously indicates that short-selling bans are disruptive for the orderly functioning of markets. They are found to reduce liquidity, increase price inefficiency and hamper price discovery. The evidence suggests that banning short-selling in periods of heavy uncertainty seems to aggravate the market volatility, rather than contain it.

Nandini Sukumar, Chief Executive Officer, the WFE commented:

Nandini Sukumar

Nandini Sukumar

It is industry experience that short selling bans do not have a positive effect on market activity or price levels. 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. We welcome the decision to allow regulated markets, that have demonstrated they are resilient and capable of operating as they should in a crisis, to now resume normal operation. We look forward to supporting Europe’s measures to rebuild the economy.

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