The report, entitled Regulation of Short Selling, was prepared by its Task Force on Short Selling.

It recommends that effective regulation of short selling should be based on four principles.

First, short selling activities 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.

Second, short selling should be subject to a reporting regime that provides timely information to the market or to market authorities.

Third, short selling should be subject to an effective compliance and enforcement system.

And fourth, short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development.

Kathleen Casey, chairman of Iosco's Technical Committee, says: 'Iosco believes that short selling plays an important role in capital markets for a variety of reasons including more efficient price discovery, mitigating price bubbles, increasing market liquidity, facilitating hedging and other risk management activities. However there is also a general concern that, especially in extreme market conditions such as we have recently experienced, certain types of short selling or the use of short selling in combination with certain abusive strategies may contribute to disorderly markets.'

The deadline for responses to this consultation paper is 4 May 2009.