Four EU states extend short-selling ban

LONDON Thu Aug 25, 2011 12:52pm EDT

LONDON (Reuters) - Italy, France, Spain and Belgium extended their short-selling bans on Thursday in a bid to cushion bank stocks from the euro debt crisis, but hinted the curbs could be lifted by October.

Spain and Italy said their bans would continue to September 30 while France's will remain in place until further notice.

Belgian regulator FSMA noted its ban on short-selling has no end-date but said it would assess lifting a ban on covered short-selling as soon as market conditions allow.

"The extended bans are up for review by end of September," the European Securities and Markets Authority (ESMA), which helped to coordinate the announcements, said in a statement.

Greek regulator HCMC, which had introduced a ban earlier, said it too would review its curbs by the end of September. They are due to expire on October 7.

Italy, Spain, Belgium and France introduced their bans on August 12 after the ESMA failed to forge a common approach among all the bloc's 27 member states.

Italy's Consob regulator also announced on Thursday it had extended the rules it introduced on July 10 regarding disclosure of short-selling positions to October 14.

Germany meanwhile quashed market rumours it too would broaden its long-standing shortselling restrictions.

Britain, the bloc's biggest stock market, refused to join the ban in August as did the Netherlands.

The four euro zone based countries imposed the ban to curb wild swings in stock markets, particularly in financial shares. The bans in Italy, France and Spain on selected financial stocks were for 15 days only, ending this week.

France modified its ban within a week to let investors maintain existing short positions.

WRONG TARGET?

Short-selling is a common way for hedge funds to bet on falling share prices, whereby traders borrow stocks to sell them in the hope of scooping them up later at a lower price.

But the bans appear to have had limited success in stopping a slide in banking shares.

Since August 12, the STOXX Europe 600 banking index .SX7P has fallen 7.5 percent, after hitting a low for the year days after the bans were introduced. The broader European market .FTEU3 is down about 3 percent.

"Short-selling was not the reason bank share prices were under pressure and banning it has not relieved that pressure," Andrew Baker, chief executive of the Alternative Investment Management Association, a hedge fund lobby group, said in response to the curb extensions.

Richard Payne, a finance academic at the Cass Business School in London, said this month restrictions on short-selling can do more harm than good by increasing volatility and bumping up trading costs.

The bans could be an attempt to deflect attention away from political failures to solve deeper economic issues, Payne said.

Banking stocks have suffered as investors fear more hits to lenders' holdings of euro zone sovereign debt, as the EU finalises a second rescue of Greece after bailing out Portugal and Ireland too.

Some market participants pinned this summer's market rout not on short-selling but on a derivatives trading bet that turned out to be wrong.

The EU and European Parliament are working on a draft law that would give ESMA greater coordination powers over shortselling restrictions, aiming to avoid the patchwork of measures by member states since the collapse of Lehman Brothers in 2008.

(Additional reporting by Nigel Tutt in Milan, Judy MacInnes in Madrid, Philip Blenkinsop in Brussels and Blaise Robinson in Paris; Editing by Douwe Miedema and David Holmes)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.