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AIMA warns short selling bans exacerbate volatility

Friday, August 12, 2011
Opalesque Industry Update - The Alternative Investment Management Association (AIMA), the global hedge fund association, has responded to the temporary short selling bans introduced by France, Italy, Belgium and Spain.

AIMA CEO Andrew Baker said: “We do not think these bans will help the current market situation. Past experience has shown that bans on short selling do not prevent market falls and indeed can exacerbate volatility. Independent academic research also supports this conclusion.

“Short-selling is a legitimate market practice which helps capital markets function effectively. It was only last year that the Committee of European Securities Regulators, the predecessor to ESMA, recognised in an official report that ‘legitimate short selling plays an important role in financial markets. It contributes to efficient price discovery, increases market liquidity, facilitates hedging and other risk management activities and can possibly help mitigate market bubbles’.

AIMA also supported a statement by the European Securities and Markets Authority (ESMA) on market abuse which emphasised that market abuse is prohibited. Andrew Baker added, “Of course market abuse is illegal and has always been condemned by our industry. If there is any proof of market abuse having taken place then the authorities should take appropriate action against the perpetrators. If there is any suggestion of market abuse, however, then it may be appropriate to take more targeted action rather than impose blanket bans of this sort.”

(press release)

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