Wednesday 16 January 2019

Short-selling ban helps the markets to stage recovery

Bank stocks benefit but 15-day measure in four nations only expected to provide temporary relief

Billionaire hedge fund
manager George Soros
Billionaire hedge fund manager George Soros

Siobhan Creaton

The 15-day ban in four European countries to stop investors profiting from false rumours helped the stock markets to recover yesterday even though there was confusion about how the rules would apply.

Regulators in France, Spain, Italy and Belgium imposed the ban on short-selling -- the term used to describe how investors bet on prices falling -- in a bid to stop false rumours that are creating huge volatility in European markets.

Germany yesterday also called for a Europe-wide ban on short-selling shares after four of its EU partners banned the speculative practice for two weeks.

"The German government has been monitoring the problem of short-selling for some time and thus banned 'naked' short-selling in Germany last year. In addition we are calling for a broad short-selling ban in Europe," a finance ministry spokesman said.

The ban helped the markets to buck the downward pressure, with bank stocks in particular benefiting from the measure that triggered what is likely to be a short-term rally.

European shares

European shares gained yesterday. Banks were among the best performers, with the Stoxx Europe 600 Banks index up 4.5pc. However, with all the volatility during the week, the index ended up making a weekly loss of 2.4pc.

Societe Generale rallied for the second day, up 5.7pc, to feature on France's CAC leader board after dropping 15pc on Wednesday on rumours about its financial solidity, which were later strongly denied.

Belgian financial group KBC and Franco-Belgian bank Dexia gained 9.6pc and 17.3pc in volumes respectively -- nearly double their 90-day daily average.

With more bad news expected from Europe's biggest economies in the months ahead, the measures are likely to provide only temporary respite.

"The authorities can ban short-selling, but they can't ban the spate of bad news on the economy from hitting the tape. A robust response that addresses long-term structural concern is needed to restore confidence to the markets," Manish Singh, head of investment at Crossbridge Capital in London, said.

The ban was adopted in a bid to stabilise the markets after the French bank Societe Generale crashed to its lowest price in the market since March 2009 after unfounded rumours about its financial position.

The European Securities and Markets Authority, which co-ordinates the work of the 27 national regulators, said the ban was imposed "to restrict the benefits that can be achieved from spreading false rumours or to achieve a regulatory level playing field".

The ban has not been adopted Europe-wide so far though, as some regulators remain unconvinced about its merits. The US and Britain said they had no plans to follow suit.

The ban sparked confusion in the markets as it took effect because while all four countries have applied the restrictions to various stocks, the French and Belgian rule changes do not appear to cover derivatives, which are included in the Spanish ban.

Germany, which last year introduced a ban on so-called 'naked' short-selling, where investors can take a punt on the stock without owning the shares, welcomed the latest ban.

Jean-Pierre Jouyet, head of the AMF, the French securities regulator, said: "They [investors] wanted to test French resistance. This is our response, as always very determined, and it will be so for all those who want to put us to the test." (Bloomberg)

Irish Independent

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