March 30, 2009 / 2:12 PM / in 9 years

UPDATE 2- Germany extends short-selling ban on bank stocks

* Watchdog says ban continues on 11 companies

* Bank stocks remain volatile - watchdog

* Reasons for original ban still present - watchdog

(Adds detail, background)

By Jonathan Gould and John O‘Donnell

FRANKFURT, March 30 (Reuters) - Germany’s Bafin has extended its ban on short selling for 11 companies until the end of May, the stock-markets watchdog said on Monday.

The ban on betting against bank stock price falls is intended to stop this type of trading, which has been blamed for aggravating the volatility of rocky bank shares.

Short-sellers are investors who borrow shares and sell them on in the hope of buying them back at a lower price, to make a profit.

Bafin’s ban applies to an especially high-risk form of trading called “naked” short selling, where the trader sells stock he has not yet borrowed.

The regulator said that the reasons for the original ban unveiled in September were still valid because bank stock prices remained unsteady. [ID:nLJ83048]

“In particular, there continues to be an unusual volatility in the shares of banks, stock-market operators, insurers and other financial services firms,” Bafin said in a statement.

The authority said that there had been sharp rises in the prices of credit default swaps -- reflecting a higher cost of getting insurance against defaults.

Stock market regulators around the world introduced curbs on short-selling, especially in financial stocks, last year.

Financial supervisors are seeking a global approach to regulating the practice. [ID:nLN316700]

Italy has extended its short-selling ban on shares in banks, insurers and companies conducting capital increases until May 31. [ID:nMAT009226] Australia and Japan have also extended their bans.

The UK, meanwhile, lifted the ban that it had imposed but requires investors to disclose short positions in banks and companies going through a rights issue.

Bafin’s ban affected shares in the following companies:

- Aareal Bank (ARLG.DE)

    - Allianz (ALVG.DE)

    - AMB Generali Holding GE1G.DE

    - Deutsche Bank (DBKGn.DE)

    - Commerzbank (CBKG.DE)

    - Deutsche Boerse (DB1Gn.DE)

    - Deutsche Postbank DPBGn.DE

    - Hannover Rueckversicherung (HNRGn.DE)

    - Hypo Real Estate Holding HRXG.DE

    - MLP (MLPG.DE)

    - Munich Re (MUVGn.DE)

    Editing by Simon Jessop

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