The International Organization of Securities Commissions (Iosco) has published a new consultation paper containing its recommendations for developing a consistent international system for the regulation of short-selling.
According to the body, the report aims to eliminate gaps for dealing with "naked" short-selling while limiting any adverse impact on the legitimate use of short positions, which can be "critical" in reducing market volatility.
Iosco’s recommendations include the introduction of an "effective discipline" for the settlement of short-selling transactions to minimize potential risk. Regulators should at least impose the "strict settlement of failed trades", the body said.
The consultation paper also calls for new reporting requirements on short positions, as well as regular analysis of short-selling information to flag up potential market abuse or systemic risk.
Furthermore, regulators should reappraise their cross-border information sharing to ensure it can support international investigations, Iosco said.
In order to protect legitimate short-selling, regulators should "clearly define" exempt activities, the report added.
Last year, both the Financial Services Authority and the Securities and Exchange Commission introduced temporary bans on short-selling following the collapse of Lehman Brothers.