Four eurozone countries ban short-selling
France, Italy, Spain and Belgium impose a ban on short-selling financial stocks in a bid to restore confidence to the markets.
“Short-selling” is effectively when traders profit from bets on a drop in share prices.
The financial tool is often blamed for market volatility and the authorities across Europe hope that enforcing the temporary ban will calm the markets, which have fluctuated globally in recent days.
Investors are concerned over the weak US economy as well as the eurozone debt crisis. In recent days, rumours that the eurozone debt crisis could engulf banks across Europe, particularly in France, has led to sharp sell-offs of bank stocks.
Societe Generale has been the worst affected, and the French bank had to reassure investors earlier this week that it was in good financial health after rumours swirled and its shares plummeted by around 15 per cent.
Temporary ban
The European Securities and Markets Authority (ESMA) introduced the short-selling ban on financial stocks last night to prevent further turmoil.
In a statement, it said: “European financial markets have been very volatile over recent weeks. The developments have raised concerns… While short-selling can be a valid trading strategy, when used in combination with spreading false rumours this is clearly abusive.”
There are already a number of regulations on short-selling in place to monitor the markets. But the ban, which is effective immediately, will prevent all forms of the practice in Belgium, France, Italy and Spain.
It is not, as some had predicted, EU-wide, and each country which is implementing the ban will have slightly different terms. Banks on the list include France’s Societe Generale and BNP Paribas as well as Spain’s Santander and BBVA.
Short-selling was temporarily banned by the United Kingdom and many other market regulators in the chaotic days after Lehman Brothers collapsed in 2008.