IDEAS home Printed from
   My bibliography  Save this paper

Short Selling Regulation after the Financial Crisis – First Principles Revisited


  • Seraina GRUENEWALD

    (University of Zurich)

  • Alexander F. WAGNER

    (Swiss Finance Institute and University of Zurich)

  • Rolf H. WEBER

    (University of Zurich)


This article examines the recent regulatory developments with regard to short selling. Short selling regulation is an important factor in firm governance because it affects the way in which firms are subject to market discipline. We begin with a comprehensive compilation of emergency restrictions on short selling adopted in the current crisis. Because of the tendency of some regulators to retain certain restrictions permanently, it is important to understand the fundamental legal and economic arguments regarding short selling. These arguments have at their core the question of whether there exists a market failure. The available evidence on balance suggests that short selling restrictions hamper the price discovery process. Also, while regulations against market abuse are required, it is an ineffective detour to pursue the goal of fair markets through the regulation of short selling. Based on these arguments, the article evaluates the approaches taken by the U.S. and U.K. regulators, who play a leading part in the current movement towards more comprehensive short selling regulation. The U.S. SEC’s recently adopted rules do not seem to bring much added value and will presumably affect market efficiency in the negative. First principles suggest a somewhat more positive stance on the SEC’s proposal for a circuit breaker rule and the U.K. FSA’s proposed disclosure approach, though both are subject to caveats. We also highlight some central questions for future research.

Suggested Citation

  • Seraina GRUENEWALD & Alexander F. WAGNER & Rolf H. WEBER, 2009. "Short Selling Regulation after the Financial Crisis – First Principles Revisited," Swiss Finance Institute Research Paper Series 09-28, Swiss Finance Institute, revised Oct 2009.
  • Handle: RePEc:chf:rpseri:rp0928

    Download full text from publisher

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Çankaya, Serkan & Eken, Hasan/M. & Ulusoy, Veysel, 2011. "The Impact of Short Selling on Intraday Volatility: Evidence from the Istanbul Stock Exchange," MPRA Paper 43658, University Library of Munich, Germany.
    2. Alessandro Beber & Marco Pagano, 2013. "Short-Selling Bans Around the World: Evidence from the 2007–09 Crisis," Journal of Finance, American Finance Association, vol. 68(1), pages 343-381, February.
    3. Oscar Bernal Diaz & Astrid Herinckx & Ariane Szafarz, 2014. "Which short-selling regulation is the least damaging to market efficiency? Evidence from Europe," Post-Print CEB, ULB -- Universite Libre de Bruxelles, vol. 37, pages 244-256, March.
    4. Matthew Clifton, 2010. "Liquidity and Efficiency During Unusual Market Conditions: An Analysis of Short Selling Restrictions and Expiration-Day Procedures on the London Stock Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 14, July-Dece.

    More about this item


    Short selling; regulation; market abuse; market efficiency; financial crisis;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp0928. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ridima Mittal). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.