CFA members vote on short selling rules

As the Securities and Exchange Commission (SEC) ponders various alternative rules on an appropriate limit on short selling in distressed markets, a survey of members by the CFA Institute Centre for Financial Market Integrity shows the least preferred method is a ban on short selling in a particular security for the remainder of the day when its price falls by 10 per cent.

The members’ most preferred option for a rule to create an appropriate limit on short selling in distressed markets is a market-wide, permanent uptick rule for short sales based on the last sale price.

Global regulators acted to suspend short selling on certain equity sectors and markets in response to the market crisis in October 2008. This poll of members by the CFA Institute Centre for Financial Market Integrity will be used in a comment letter to the SEC in June.

The Institute says that now the crisis has abated, and short selling suspensions for the most part have been lifted, there is an interest in establishing a more reasoned and permanent check and balance on short selling.

An overwhelming number of its members agree that short selling benefits the market by providing price discovery and market liquidity, according to the survey, with 48 per cent strongly agreeing, and a further 41 per cent agreeing.

However 65 per cent of members believe naked short selling should never be allowed.

The survey was sent to the CFA Institute’s 19,988 members in May, and 1,417 responded.