Controlled Short Selling in Stock Markets: International Experience and Policy Implications for Vietnam

Abstract

This paper examines controlled short selling in stock markets from a comparative institutional perspective and derives policy implications for Vietnam. Drawing on peer-reviewed research and official regulatory documents, the study compares the United States, Japan, South Korea, and China using a common set of dimensions, including eligible securities, borrowing or locate requirements, margin and collateral, price restrictions, position reporting and disclosure, market surveillance, enforcement, and emergency intervention. The comparison indicates that mature and emerging markets do not generally choose between complete prohibition and unrestricted short selling. Instead, they combine multiple safeguards to preserve the price-discovery, liquidity, and hedging functions of short selling while containing settlement failures, abusive naked short selling, leverage, and market misconduct. In light of international practice and Vietnam’s existing legal framework, the paper recommends a phased approach centered initially on covered short selling for liquid and borrowable securities, supported by a robust securities lending infrastructure, collateral management, short-order identification, electronic surveillance, disclosure, and flexible countercyclical safeguards. A hybrid policy architecture drawing on the U.S. and Japanese trigger-based price controls, Korea’s electronic monitoring framework, and China’s phased and countercyclical approach is proposed as a practical reference for Vietnam’s pilot and subsequent expansion.