A dark day for short sellers

The Securities and Exchange Commission is proposing significant restrictions on legitimate forms of short selling, which is likely to elicit a heated response from hedge funds, investment banks, and mutual funds, all of which use shorting as a tool to build value in their portfolios.

The legitimacy of the practice of short selling is based on the fact that it is the most direct and functional way to bet that an individual stock will fall. The practice requires the buyer to borrow stock from another party, which includes taking the financial risk if the stock rises.