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EU watchdog defends Greek short selling ban

The head of Europe's top securities watchdog has defended an extension of a ban on the short selling on five Greek banks, as the state of the debt-mired country's financial system still poses a risk to financial markets.

Steven Maijoor, who heads the European Securities and Markets Authority (ESMA) told CNBC the situation in Greece is "very exceptional" and the ban was given the go-ahead by the European watchdog as the threat of deeper instability in markets is still an issue for Greece.

People wait to enter a bank branch as Greek banks reopened on Monday morning after three weeks of closure on July 20, 2015 in Athens, Greece.
Milos Bicanski | Getty Images
People wait to enter a bank branch as Greek banks reopened on Monday morning after three weeks of closure on July 20, 2015 in Athens, Greece.

"The broad criterion (for the ban) is whether there is a threat to financial stability. The fact that it is also only Greece shows how exceptional the measure is," he said. He warned of continuing risks of instability to the Greek financial system.

The emergency measure was extended as of Tuesday this week until the first week in December in an effort to give Greece some breathing space with its recapitalization efforts.

ESMA said the re-capitalization of Greek banks could be more difficult and more costly in the face of heightened market volatility, which would be exacerbated by short-selling, or betting that the price of a security will fall.

The regulator's board of supervisors, which is made up of 28 members from each of the European member states approved the Greek regulator's suggestion to extend the original ban this week, which first came into effect in June along with capital controls when fears of Greece being ejected from the euro zone caused a run on bank deposits.

Since then, Greece has agreed to a new 86 billion euro ($92 billion) bailout with international creditors and in early September, the short-selling ban was lifted for equity derivatives.

Five major banks of Greece including Alpha Bank, Attica Bank, National Bank of Greece, Eurobank Ergasia, and Piraeus Bank will all be continued to be covered by the ban.

Maijoor also didn't rule out the possibility of a further extension beyond the December deadline.

"Clearly it is a very targeted measure, very specific and in this case it relates to the banks because of the recapitalization issue in Greece. We take it on a month to month basis and the current ban will go until the first week of December, then it will be assessed as to whether another extension is needed," he said.

Greek banking stocks came under renewed pressure earlier this year, hitting fresh all-time lows as fears over the country's debt crisis resurfaced and amid concerns that the European Central Bank would finally cut off funding support to the country's lenders.

"I think there can be manipulation in stocks going up, we can talk stocks up. We also know we can talk stocks down so we need to have a measure against that and avoid market abuse. But again I would like to emphasize that this is an exceptional measure," Maijoor added.