City watchdog the Financial Conduct Authority (FCA) today ruled out a ban on short-selling saying there was no evidence it was behind recent market falls.
Countries such as Italy and Spain have introduced restrictions on short-selling to try and help prevent market volatility as the coronavirus pandemic causes economic chaos.
“There is no evidence that short-selling has been the driver of recent market falls,” the FCA said as it ruled out a ban.
In short-selling, an investor borrows shares at a certain price and then sells them on, in the belief the share price will fall and they will be able to re-buy the shares at a lower price before they have to return them.
“Aggregate net short selling activity reported to FCA is low as a percentage of total market activity and has decreased in recent days, the watchdog said.
The FCA said short selling was a useful tool in a number of investment and risks management strategies, allowing the ability to take long and short positions.
It also said short selling is a “critical underpinning of liquidity provision”.
“The loss of these benefits would need to be carefully balanced before determining that any intervention to prevent short selling was appropriate,” the watchdog said.
“We will continue to co-ordinate with our international partners and take all actions within our power where necessary to safeguard orderly markets,” the FCA said.