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IOSCO developed high-level principles for the effective regulation of short selling. These principles are designed to assist regulators in their consideration of a regulatory regime for short selling. IOSCO recommends that effective regulation of short selling comprises the following four principles:
a) Short selling should be subject to appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of financial markets.
b) Short selling should be subject to a reporting regime that provides timely information to the market or to market authorities2.
c) Short selling should be subject to an effective compliance and enforcement system.
d) Short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development.