Ban Short-Selling in Best National Interest

Sankarshan Acharya
February 9, 2008

The current practice of short selling financial securities creates more shares, surreptitiously, than the legally issued and outstanding shares of a company.  This may be illegal due to violation of the Company Act, which stipulates the outstanding shares and mandates that regulatory agencies monitor compliance by issuers of securities.  This letter argues that short selling is also sub-optimal for a democracy that follows a policymaking paradigm of balancing individual prosperity with social stability.  Social instability can be exorbitantly costly when a majority of households faces continual erosion of retirement savings due to short selling.    

Sub-optimality of Short-Selling