(Updates with Asia context, more quotes)
By Geert de Clercq and Paul Day
PARIS/MADRID, Aug 12 (Reuters)- A ban on short-selling
financial stocks in four European countries including France
takes effect on Friday, a coordinated attempt to restore
confidence in a market hit by rumours and higher borrowing
France, Italy, Spain and Belgium imposed the ban, which will
vary in detail depending on the country, the European Securities
and Markets Authority (EMSA) said in a statement late on
European markets have repeatedly moved on rumours about the
health and funding needs of indebted euro zone governments, and
more recently on some of its major banks.
The DJ Stoxx index of European banking stocks has
fallen 37 percent from a peak in February and touched a 28-month
low on Thursday. The index is down 17 percent in August alone.
"It's one of those things that politicians grasp for when
they have no other tools left in their arsenal," said James
Angel, an associate professor specializing in financial market
regulation at Georgetown University's McDonough School of
Business in Washington DC.
"All it really does is kick sand in the ears of the market
and signals to the world that the leaders are clueless as to
what's going on."
European regulators had previously played down the idea of a
blanket ban on short-selling, through which an investor borrows
shares and sells them on the expectation their price will fall
and they can be bought back at a lower price.
EMSA said short-selling combined with rumour-mongering
created a strategy that was "clearly abusive."
"Today some authorities have decided to impose or extend
existing short-selling bans in their respective countries," it
said. "They have done so either to restrict the benefits that
can be achieved from spreading false rumours or to achieve a
regulatory level playing field."
France will ban short selling on 11 financial stocks for 15
days, Spain will protect 16 stocks for 15 days, while Belgium
will ban short selling of four financial stocks for an
indefinite period. Details of the Italian ban were not
Banks on the list included France's BNP Paribas
and Societe Generale , and Spain's Santander
and BBVA .
For a full list of the French, Spanish and Belgian stocks,
The European assault mirrors one by the U.S. Securities and
Exchange Commission on Sept. 19, 2008, four days after Lehman
Brothers collapsed, to temporarily ban short selling in 799
banks and other financial institutions.
The U.K. imposed a similar prohibition at that time.
The U.S. move was of questionable value, according to
several academic studies. While share borrowing fell during the
three-week ban, financial stocks continued to plummet.
It also raised philosophical issues about whether regulators
should interfere with the free market and the rights of
investors to hedge or speculate. The move was also criticized by
at least one former SEC official as a political decision.
"If you talk to people who understand the technology of
markets, including regulators, it's the general consensus that
banning short-sales doesn't achieve the stated objectives," said
Nicholas de Boursac, chief executive of the Asia Securities
Industry and Financial Markets Association.
In Asia, South Korea banned short-selling in all listed
stocks on Tuesday. It already had a rule in place prohibiting
the shorting of financial stocks. Hong Kong is bringing in rules
forcing investors to disclose short positions above a certain
threshold to the market regulator.
Some hedge fund experts said the European ban would likely
limit liquidity by shutting out some market participants.
"For every short position there must be an equivalent
purchase at some point. That's not the case if investors have to
protect themselves by moving to cash -- there's then no
imperative to buy," said Peter Douglas, chief executive of GFIA,
a Singapore-based wealth manager and hedge fund consultant.
"However, banning short-selling is helpful politically, as
it demonstrates to electorates that governments are doing
FRAGILE FRENCH BANKS?
The latest market turmoil focused on speculation about
French banks, which are heavily exposed to European countries at
the centre of the region's debt crisis. Societe Generale
, France's No. 2 lender, has especially been in the eye
of the storm.
Those rumours sent shock waves through credit markets,
pushing interbank borrowing rates higher and triggering a
3-month high of 4 billion euros in emergency overnight borrowing
from the European Central Bank.
The turmoil drove up European banks' borrowing costs to
levels not seen since the 2007-2009 global credit crisis and
raised the question whether the difficulties may foretell a
repeat of the crisis, when arteries of global finance seized up.
"With banking rumours surfacing yesterday, it feels like the
run-up to Lehman's collapse, where banks don't trust each
other," said Commerzbank rate strategist Christoph Rieger.
The signals from Europe also set off alarm bells in Asia.
Banking sources told Reuters on Thursday that one bank in the
region had cut credit lines to major French lenders, while five
others were reviewing trades and counterparty risk.
Investors said the latest loss of confidence was a sign that
few of the problems that brought bank lending to a halt last
time around have really gone away.
"The market is already broken. It has never fully recovered
anyway from 2008. Liquidity comes in fits and starts, and risk
appetite in the banks is understandably very modest," said
Stephen Snowden, fixed income manager at Aegon Asset Management.
Bank of France Governor Christian Noyer said French banks
were solid and would not be affected by the market turmoil.
"Their capital levels, boosted by strong equity capital, are
adequate, and their medium- to long-term financing programs are
being carried out in perfectly satisfactory conditions," Noyer
said in a statement.
(Writing by Janet Guttsman, additional reporting by Judy
McInnes, Jed Horowitz, Paritosh Bansal and Rachel Armstrong in
SINGAPORE. Editing by Martin Howell and Dean Yates)