New European solution to ending stock sell-offs: Ban short selling

In such deals, a trader sells borrowed shares in hopes that they will decline in value before he has to buy them back to close out his loan. The difference in price is his profit, or loss. Critics say short-selling encourages speculation and pushes stock prices down, sometimes feeding on itself in a panicked market, while advocates say it keeps the market honest and maintains liquidity…

Two people with knowledge of the discussions, who declined to be identified by name because the talks are confidential, said that the authority might propose a ban on betting against all stocks or just financial stocks. It also may propose a ban on a certain type of short-selling, known as a naked short, in which the party making the negative bet does not borrow the share it is shorting first. The bans would likely be temporary, just to calm the markets.