A trader reacts at his desk in front of the DAX board at the Frankfurt stock exchange August 18, 2011. REUTERS/Alex Domanski
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New moves to curb short-selling in some countries have set the stage for a renewed battle between free market advocates and authorities aiming to check investors they see as profiteers who destabilize major companies.South Korea is considering restrictions while European authorities are investigating short-sellers over alleged market manipulation -- part of a nascent trend that Carson Block, founder of U.S. short-seller Muddy Waters Capital LLC, decried to Reuters as a "global war against truth". The effectiveness of such bans has been questioned by some academics and institutions including the Federal Reserve Bank of New York. But the global mood may be increasingly turning against short-sellers, who borrow shares and immediately sell them, betting the price will fall before they buy back the shares and return them, pocketing the difference.The EU agency said countries instituted the bans to restrict the benefits of spreading false rumors or to achieve a regulatory level playing field.Critics of bans, however, say they undermine free markets, as well as limiting accurate asset-pricing and dampening trading volumes, raising transaction costs for all investors.A New York Fed review of more than 400 U.S. financial stocks over the 14 days that short-sale bans were in effect in late 2008, for example, showed they did not have the intended effect.A 2017 analysis of short bans by ESMA also found there was no statistically significant impact on share prices or liquidity.
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