Short Selling: To Ban or Not to Ban?

28 September 2020
Erin B. McHugh and Eugene Ng

The COVID-19 pandemic and associated market downturn and volatility caused several European countries’ financial regulators to impose bans on short selling. More particularly, in mid-March 2020, the financial regulators of Italy, Spain, Belgium, France, Greece, and Austria all imposed temporary short-selling bans applicable either to certain companies’ shares that had suffered substantial price declines or to all shares traded on their national trading venues. However, the historical evidence on the effectiveness of short-selling bans in mitigating share price declines and muting volatility is mixed. Moreover, the costs of such actions must be carefully weighed against any potential benefits. 

In this white paper, NERA Associate Director Erin B. McHugh and Research Officer Eugene Ng first explain short selling, recent market developments, and relevant academic literature. They then discuss potential disputes that may arise in relation to short-selling bans, including international arbitration claims. 

This paper inaugurates NERA’s international arbitration white paper series, which aims to cover a range of international arbitration topics from the perspectives of economists and expert witnesses.