EUROPE - The International Securities Lending Association (ISLA) has called on the European Commission to adopt "consistent and proportionate" regulation for short selling.

The Commission is currently consulting on a number of measures that would allow member state authorities to restrict or ban short selling temporarily in emergency situations.

It is also looking to increase transparency about short-selling positions, as well as reduce settlement risks of naked short selling.

ISLA said it largely agreed with the Commission's aims, but that recent and proposed regulatory interventions were "inconsistent and disproportionate" to the risks being addressed.

The association emphasised that short selling was a "legitimate and important investment activity", which enhanced price discovery, counteracted supply-and-demand imbalances and provided liquidity to the market.

Kevin McNulty, chief executive of ISLA, said it was "counterproductive" for European securities regulators to impose short-selling restrictions unilaterally.

"Our members want proportionate and consistent regulation across Europe, given the material costs and increased complexity of complying with different regimes and potential negative impact on efficiency of markets," he said.

While the association conceded naked short selling could be restricted, it said the actual systemic risk of the practice in Europe was minimal.

ISLA has recommended private disclosure of short positions to the regulator and then anonymous publication of aggregate short positions.

This is in contrast to the proposal put forward by the Committee of European Securities Regulators.

The association also recommended market makers be exempt from disclosure requirements or other restrictions applied to short sellers.
 

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