An introduction to short selling
Produced in partnership with Orrick, Herrington & Sutcliffe
An introduction to short selling

The following Financial Services practice note produced in partnership with Orrick, Herrington & Sutcliffe provides comprehensive and up to date legal information covering:

  • An introduction to short selling
  • Who can short sell?
  • Market use of short selling
  • Short selling and market abuse
  • Role of short selling in the financial crisis
  • Regulators’ response to the financial crisis
  • Developments in relation to the regulation of short selling

An introduction to short selling

BREXIT: 11pm (GMT) on 31 December 2020 (‘IP completion day’) marked the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. Following IP completion day, key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see: Brexit and financial services: materials on the post-Brexit UK/EU regulatory regime.

Short selling, or 'going short', is a technique whereby traders sell shares or debt instruments ('securities') which they do not own at the time of entering into the agreement to sell, in the hope that the price of the securities will fall, enabling the short seller to buy the shares back at a cheaper price than the sale price thereby making a profit. It is in the interests of short sellers for the price of securities to fall, and it is partly for this reason that the practice has been subject to regulatory restrictions since the financial crisis.

The two principal methods of short selling are:

  1. covered short selling—this method of short selling occurs when the short seller borrows, or agrees to borrow, the number of securities that are being sold short from a holder of the securities. The holder in turn receives lending fees from the borrower,

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