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The European Securities and Markets Authority, the body that coordinates the European Union’s market policies, announced in mid-August that short sales—negative bets on stocks—would be temporarily banned in France, Belgium, Italy and Spain, in an effort to stop the market’s decline.
This follows a similar effort already imposed in Greece and Turkey. In a short sale, a trader sells borrowed shares in hopes that they will decline in value before he has to buy them back to close out his loan.
The difference in price is his profit, or loss. In a New York Times article, critics of short selling applaud the move, saying short selling encourages speculation and drives down stock prices, especially in a panicking market.
Advocates say the practice maintains liquidity and provides an idea of how investors view certain companies. The EU hopes the move will calm down the market panic they feel was driven by short-selling. Britain and Germany are among the countries that did not join the ban.
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