E.U. – ESMA Issues Paper on Short Selling Ban Impact

E.U. – ESMA Issues Paper on Short Selling Ban Impact

On 11 January 2024, ESMA issued paper on 2020 short selling ban impact.

  • ESMA issued working paper on market impacts of the 2020 short selling bans.
  • Follows, ESMA, March 2022, market impact analysis on short selling bans.
  • Follows, ESMA, April 2022 issued final report on short selling review.


  • At height of the COVID-19 related market stress in Mar. 2020, six European countries jointly implemented market-wide short selling bans, which ESMA's paper reviews.
  • Utilizing regulatory data on share trading volumes and short positions, and complementing existing literature, ESMA conducted an analysis of these bans.
  • Based on difference-in-difference approach, ESMA found that 2020 short selling bans link with deterioration in liquidity and trading volumes, and decrease in volatility.
  • ESMA do not find evidence that bans supported nor harmed prices of banned shares over application period, as negative impact on liquidity persisted even after bans lifted.
  • Liquidity deterioration appears stronger for liquid shares, i.e., more pronounced for large-cap stocks, highly fragmented stocks, and stocks with listed derivatives.
  • ESMA's paper observes the sectoral effects for the stocks most affected by the market stress, which includes namely, the healthcare and the consumer cyclical sectors.
  • Shares already shorted before the bans saw stronger declines in liquidity and volatility.
  • The paper observes that this implies a more challenging price discovery process.
  • No evidence found of displacement effect with banning and non-banning jurisdictions.


  • This empirical analysis contributes to supervisory convergence in the context of the latest review of the EU short selling regulation, to review impact of short selling bans.
  • The year 2020 was the first coordinated market-wide ban on short selling, and ESMA's working paper and analysis reviews improving the overall efficiency of such policies.