Short-selling "vital" to markets - new WFE head

MILAN, Oct 14 (Reuters) - Short-selling is a "vital" tool for markets and should not be demonised, the incoming chairman of the group representing the world's exchanges said on Tuesday.

"Short-selling is recognised as a viable and vital (instrument) of the market," William Brodsky, who is also chief executive of the Chicago Board Options Exchange (CBOE), told a news conference.

Speaking after a two-day meeting of the World Federation of Exchanges (WFE), Brodksy cited panic and confusion sown by the global financial crisis for the recent bans on the short-selling of certain stocks in a number of countries.

"We must be very careful not to demonise short-selling," he said. "It is a very important part of a complicated market structure."

Investors short sell a company's shares by selling borrowed shares in the hope their price will fall. They then buy back those shares more cheaply to make a profit.

Bank and financial stocks have been among those that have suffered the most from short-selling in recent months and bans have been imposed to stop their free-fall in several countries.

In the United States, the ban on more than 950 companies with business in financial services expired last week.

The Securities and Exchange Commission (SEC) and the Nasdaq (NDAQ.O: Quote, Profile, Research, Stock Buzz) and the New York Stock Exchange (NYX.N: Quote, Profile, Research, Stock Buzz) markets are considering a temporary ban on short-selling a particular stock if it falls by more than a certain percentage, a source briefed on the matter told Reuters on Oct. 10.

The WFE's outgoing chairman, Massimo Capuano, head of Borsa Italiana, told the news conference he understood the need for the ban for exceptional situations.

Ahead of its meeting in Milan on Sunday, the WFE, whose members account for more than 97 percent of world stock market capitalization, issued a statement saying market trading must not be suspended as a way to cope with the crisis.

It later welcomed the coordinated effort by industrialised countries to recapitalise banks and implement other measures to safeguard the stability of the global financial system.

"The WFE wants to be a strong contributor in the solution for the crisis," Brodksy said.

(Reporting by Gilles Castonguay and Sabina Suzzi; Editing by Andrew Macdonald)

source:. http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSLE35629120081014?pageNumber=2&virtualBrandChannel=0