“The European Securities and Markets Authority, a body that coordinates the European Union’s market policies, has been requesting information from member states about such bets against stocks, known as short-sales,” Castle and Story report. “In such deals, a trader sells borrowed shares in hopes that they will decline in value before he has to buy them back to close out his loan. The difference in price is his profit, or loss.”
Castle and Story report, “Critics say short-selling encourages speculation and pushes stock prices down, sometimes feeding on itself in a panicked market, while advocates say it keeps the market honest and maintains liquidity… Two people with knowledge of the discussions, who declined to be identified by name because the talks are confidential, said the authority might propose a ban on betting against all stocks or just financial stocks. The authority may also propose a ban on a certain type of short-selling, known as a naked short, in which the party making the negative bet does not borrow the share it is shorting first. The bans would probably be temporary, with the aim of calming the markets.”
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