Thursday, July 30, 2009

SEC Issues Permanent Ban on Abusive Short Sales

In the aftermath of the financial crisis, the US Securities and Exchange Commission (SEC) had issued a temporary ban on the practice of “naked” short sales. By way of a recent press release, SEC has now made the ban permanent. The Press Release defines a “naked” short sale as one where “the investor sells shares "short" without first having borrowed them”.

While the Indian securities regulations permitted short sales only early last year, SEBI’s approach has been guarded to begin with. As discussed in a previous post, “naked” short sales have always been banned in India and only short sales through borrowing of securities have been permitted. That post also discusses the benefits and risks of the practice of short sales in securities generally.

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