Short selling is the speculation mechanism, which lets market traders to take advantage from an overpriced asset. The opportunity of borrowing securities from institutions and in succession selling them to the market in the hope of buying them at a lower price has been drawing debate for centuries. In the aftereffects of the recent financial crisis, the number of supervisory occurrences to restrain the outlaws related with the practice has increased across countries. On the other hand, history of short selling illustrates that implementing barriers when markets turn hostile has become a periodic move. The purpose of this report is to provide information about short selling. The report will provide some information to define and set out the boundaries of the concept of short selling, short history, debate around short selling impact on financial markets and companies, concerning market quality and operational efficiency, and regulations implemented during global financial crises in different countries. The Controversial History of Short Selling
The concept of short selling isn't a new idea; it got its start when stock exchanges emerged in Europe in the late 1500s. In the beginning of the 17th century the Dutch market crashed, and Isaac Le Maire, a big share holder of the Dutch East-India Company (Vereenigde Oostindische Compagnie or VOC), was blamed because he was actively short selling stocks. Le Maire’s researched and assumed that the East Indies Company’s share price was to fall significantly. Consequently he destructively shorted the stock and spread negative stories about the company. In 1610 he was eventually proved himself right when the shares of the East Indies Company collapsed. The result was so significant that the bull market (or rising market) terminated. Investors accused Le Maire and other short sellers because of the termination of the East Indies Company’s shares. The effect was that the Dutch government banned short...
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