Europe bans short selling to little effect
Four European countries announces ban on financial stock short-selling, but worries of backfire remain as markets show little sign of stabilization. August 12, 2011 | Wong Wei HanA ban on short-selling of specific financial stocks for 15 days has been imposed in France, Italy, Spain and Belgium. The ban, which will take effect on August 12th, is a measure coordinated by regional regulators in response to volatile markets in recent weeks, with DJ Stoxx index recording a 37% decline in European financial stocks--a 28-month low after a peak in February. Included on the list of banks affected by the ban are France’s BNP Paribas and Société Générale, as well as Santander and BBVA in Spain. Greece and Turkey have imposed a similar ban earlier in the week. In a statement released on August 11th, the European Securities and Markets Authority highlighted the necessity for European authorities to take a firm stand against bank shorting, which the agency calls an abusive strategy when combined with the dissemination of rumours pertaining to the fragility of financial institutions in Europe, particularly in France where fears remain over the spilling of debt crisis. However, already various industry experts and academics are questioning whether the bans will be constructive in the long term, with some equating the measure to a knee-jerk reaction that might backfire as it gives signs of panic and further weaknesses. These arguments are not without support when we examine the outcome of similar bans in 2008, first imposed by the UK Financial Services Authority to counter the Lehmann Brother collapse and soon followed by regulators in other countries. The ensuing chaos suggests that such high-handed intervention only has a minimal impact on stabilizing crashing markets. Investor doubt concerning the ban is obvious as European stock markets struggled early on August 12th. Over in Asia, regulators are exercising prudence in following the footsteps of their European counterparts. Top regulators in South Korea have said that the country is likely to shorten its 3-month short-selling ban announced on August 10th once the market s... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Exchanges, Markets & Exchanges, Risk and RegulationExchanges,Markets Exchanges,Risk and Regulation, Exchanges,Markets & Exchanges,Risk and Regulation, Keywords:Short Selling, BBVA, Société Générale, BNP Paribas, ESMA, FSA, Market Risk, DJ Stoxx Short Selling, BBVA, Société Générale, BNP Paribas, ESMA, FSA, Market Risk, DJ Stoxx
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