Short Sale Is The Sale Of A Stock

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According to the provisions of the US Securities and Exchange Commission, A short sale is the sale of a stock that an investor does not own or a sale which is consummated by the delivery of a stock borrowed by, or for the account of, the investor. It is usually performed to profit from an expected decline in the price of a financial instrument. Typically, the short-seller will borrow the securities to be sold, and later repurchase identical securities for return to the lender. Short selling can be divided into two types: "covered" short selling where the seller has made arrangements to borrow the securities before the sale and "naked" short selling where the seller has not borrowed the securities when the short sale occurs. Although…show more content…
The lack of information on short positions also means that regulators cannot properly monitor short selling transactions for possible market abuse, so there may have possibility of abusive behaviour not being detected or sanctioned.

As outlined above, which can be seen as reasons why many countries have already taken national actions on restrictions on short sale. After 2008 financial crisis, most countries introduced in emergency measures of intervention in the short selling. Among these measures, information disclosure system, price regulation and prohibition of naked short selling are relatively significant and have more attention by the public.
For example, UK has taken actions with regard to short selling restrictions and disclosure requirements. Since there is a difference in and changes in national rules on short selling, so implying additional compliance costs for investors who operating in several EU markets, such as costs of identifying different national rules.

The effects of these restrictions on market.
The first figure shows that the cumulative returns for the 146 sample stocks which are in the SEC’s original shorting ban list, and returns for the S&P500 index, and the 1066 NYSE controlled stocks that has no short sale ban. We can see that the all three stocks have similar trends of return from Aug 1 to Sep 17, so that the treated stocks and control stocks are quite similar before the implementation of the ban. The ban was announced and implemented
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