Financial regulators in Austria, Belgium, France, Greece, Italy, and Spain banned short sales of equities for two months in 2020 in response to Covid-19 market turmoil. Staff at the European Securities and Market Authority (ESMA) collected data on how equities responded to those short selling bans and discussed those responses in a 1 March 2022 Trends, Risks, and Vulnerabilities risk analysis. ESMA staff concluded that short selling bans in those six countries didn’t seem to spur a spike in short selling in other jurisdictions. The short selling bans did seem to contribute to higher bid-ask spreads and illiquidity. ESMA staff found the liquidity of stocks with listed derivatives impacted more by the short selling ban than the liquidity of stocks without listed derivatives. The more liquid a stock was expected to be before the short selling ban, the more the short selling ban seemed to impair the stock’s liquidity. ESMA staff also found short selling bans on equities seemed to have meaningfully reduced those equities’ volatility. While ESMA staff notes that further analysis can reveal more about short selling bans’ effects, they also observe that the 2020 coordinated short selling bans seemed to have reduced volatility and “disorderly downward price spirals” as regulators intended.

ESMA published a final report on guidelines for disclosure of short sale equities positions and related technical standards in 2013, permitting it and its member states’ regulators to gather data about each short selling market. ESMA’s risk analysis may inform readers’ review of the Securities and Exchange Commission’s proposed rules regarding short selling, published February 25, 2022.

For more information about ESMA’s report, please see:

For information about the Securities and Exchange Commission’s proposed rule on short sales, please see: