Nasdaq Public Policy launched a Short Selling Resource Hub in October 2023, aimed at educating market participants on short selling, its complexities, and the regulatory safeguards in place. This resource includes insights into the market data landscape and investor protections relevant to short selling.
Short selling involves selling borrowed shares at a high price, with the intention of repurchasing them at a lower price. This practice enhances market liquidity, aids price discovery, and acts as a counterbalance to market bubbles. However, it comes with significant risks, including unlimited loss potential if stock prices rise unexpectedly and stringent margin requirements enforced by brokers.
In the U.S., short selling is governed by SEC Regulation SHO, which sets rules to prevent manipulative practices such as naked short selling. Nasdaq has advocated for improved transparency around short selling for over a decade, arguing for increased disclosures that align with those of long sellers. It emphasizes the importance of short selling in promoting market efficiency and accurate valuations.
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