Ban on short sales: How effective is it in stemming panic?

Santosh Nair
Moneycontrol.com

Regulators in France, Spain, Belgium and Italy have banned short sales in select financial stocks for two weeks starting Friday, as they try to limit the slide in these shares. With panic over the debt problems in the US and Europe spreading, regulators are using every weapon in their arsenal to prevent a vicious cycle of falling share prices and panic selling from exacerbating the woes of distressed financial institutions.

Is banning short sales an effective tool to calm the roiled markets? Doubtful, if past instances of similar actions by regulators in the US and UK, are any indication.

During the peak of the global markets crisis in 2008, US