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Avgouleas, Emilios --- "The Vexed Issue of Short Sales Regulation when Prohibition is Inefficient and Disclosure Insufficient" [2011] ELECD 1045; in Alexander, Kern; Moloney, Niamh (eds), "Law Reform and Financial Markets" (Edward Elgar Publishing, 2011)

Book Title: Law Reform and Financial Markets

Editor(s): Alexander, Kern; Moloney, Niamh

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857936622

Section: Chapter 3

Section Title: The Vexed Issue of Short Sales Regulation when Prohibition is Inefficient and Disclosure Insufficient

Author(s): Avgouleas, Emilios

Number of pages: 40

Extract:

3. The vexed issue of short sales
regulation when prohibition is
inefficient and disclosure insufficient
Emilios Avgouleas1

INTRODUCTION

Overview

Short selling normally describes the sale of securities that the seller does
not own.2 In the most common scenario, the seller borrows the securities
concerned and engages in relevant transactions against a commitment to
buy the securities back later at a lower price, returning also any borrowed
shares to the lender. Apart from moral concerns, the main economic issues
arising from trading securities that an investor does not own3 relate to short


1 Professor of Financial Law and International Financial Markets, School of

Law, University of Manchester. Although some sections of this chapter draw on
an earlier article, published in the Stanford Journal of Law, Business and Finance,
this is a totally revised and updated work. The revision of this chapter was com-
pleted in May 2011. The chapter does not discuss critical market and regulatory
developments beyond this point.
2 IOSCO's Consultation Paper on the regulation of short selling suggests

that short sales should generally be understood as transactions characterized by
the presence of two factors: `(i) a sale of stock that (ii) the seller does not own at
the point of sale'. IOSCO, Technical Committee, Regulation of Short Selling ­
Consultation Report (IOSCO, 2009) (IOSCO Report), Appendix III, at 24.
3 IOSCO's Report suggests that a trader should be regarded as owning the

securities in which she trades when: `(i) the seller has purchased or entered into ...