Regulatory Politics And Short Selling
The SEC has plenary authority over the short selling of exchangeregistered securities. In the past it has altered the regulatory framework for short selling only occasionally, relying primarily on no-action letters to guide evolving practices and issues. Since early 2008, the SEC promulgated, either on a proposing, final, interim-final, or emergency basis, a raft of rules related to short selling, all of which generally restrict the ability of investors to sell stocks short. Much of this rulemaking reverses a course of policy set out by the SEC to carefully balance efficiency and market quality issues. This paper considers various reasons the SEC may have struck out on such a divergent course. In particular, it highlights the role of external influences on the SEC as it relates to short selling policy.