The U.S. Securities and Exchange Commission has planned and is all set now to curb the short selling phenomena which can lead the waves of declines by 10% on an average daily single.
The decision will curtail the year long debate to rigorous practice of the same, by which the investors make the gain on selling the borrowed shares which is declining in value terms. However for the declining stocks the short selling will be permissible only if the price of the security is above the current national bid.
The price shall be examined for security at any point of time or day where in which the price plunges down by 10% or more from the previous day’s closing.
Due to the call of recent economic turmoil the lawmakers has planned to put restrictions.
However there isn’t any empirical evidence which could blame that short selling pulls down the markets. According to the commission they just reacted to play safe. SEC’s point of view holds justification that the new rules are made to curb the mannerism of investors pulling down the stocks and hurting the market sentiments.
But just to play safe can raise concerns for the individual securities which are coming under the pressure of downward price and when combined with the jeopardy of short selling could turn down a destabilize the market, further leading to a insecure investor.
According to Goldman Sachs, the industry won’t be much pleased with the new rules of the game and could harm the efficiency and liquidity of market.