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Short selling 'fundamental part of an efficient market'

26 February 2013 Last updated at 09:56 GMT

Short selling is a $2 trillion (£1.31 trillion) global industry which has often attracted controversy, particularly when its lending is used to do a trade known as "shorting" stocks.

Shorting is when an investor borrows a stock sells it on the expectation the price will fall, and then buys it back at a later date, at a lower price, and returns it.

Short selling has been blamed by many for exacerbating market falls and has been temporarily banned in a number of countries including France and Spain.

But shorting is something which many pension funds and others take part in through hedge funds and other investment vehicles.

David Lewis, head of the Securities Lending division at SunGard, told the Today programme: "Many studies have shown that volatility increases when short selling has been banned because you don't have the efficient price discovery.

"Short selling is a fundamental part of an efficient market."

First broadcast on BBC Radio 4's Today programme on Tuesday 26 February 2013.