Markets

Short-selling bans sweep Europe in the hope of stemming stock market bleeding

Key Points
  • The pan-European Stoxx 600 index has plunged more than 34% in the last month, including notching its worst one-day percentage decline in history last Thursday.
  • France's Autorité des Marchés Financiers banned short selling in 92 shares, those most impacted during Monday's sell-off, until the end of Tuesday's trading session.
  • The European Union's financial regulator, the European Securities and Markets Authority (ESMA), on Tuesday began forcing greater transparency of short positions by halving the threshold at which they must be disclosed.
A visitor passes a sign in the lobby of the European Securities and Markets Authority's (ESMA) headquarters in Paris,
Balint Porneczi | Bloomberg | Getty Images

European market watchdogs have moved to tighten rules on short selling in an effort to stem the historic losses arising from the coronavirus pandemic.

Short selling involves an investor borrowing a security and selling it on the open market, with a view to buying it back later at a reduced price, hence capitalization on the depreciation of a stock's value. It is common, albeit controversial, practice at times of great market distress.

The pan-European Stoxx 600 index has plunged more than 34% in the last month, including notching its worst one-day percentage decline in history last Thursday, as travel and industrial shutdowns grind the continent to a halt in a bid to curtail the rapid spread of the virus.

France's Autorité des Marchés Financiers banned short selling in 92 shares, those most impacted during Monday's sell-off, until the end of Tuesday's trading session.

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France's CAC 40 is down by almost 40% over the past month, with losses intensifying over the past week as the number of coronavirus cases in the country escalated, leading President Emmanuel Macron on Monday to announce a 15-day nationwide lockdown.

In Italy, the country most impacted by the outbreak on the continent, regulator Consob announced a 24-hour halt to short trades on 20 shares, while Spain's CNMV regulator has banned transactions in Spanish shares involving the establishment or increase of net short positions for a month as of Tuesday.

Both Italy's blue-chip FTSE MIB and Spain's IBEX have fallen by around 40% over the past month, with the two countries reporting 27,980 and 11,279 cases of coronavirus respectively, according to the latest figures from Johns Hopkins University.

People wearing protective mask walk near Piazza del Popolo during the Coronavirus emergency on Mar. 14, 2020, in Rome, Italy. The Italian government has taken the unprecedented measure of a nationwide lockdown by closing all businesses except essential services such as, pharmacies, grocery stores, hardware stores and tobacconists and banks, in an effort to fight the coronavirus outbreak.
Antonio Masiello | Getty Images

The European Union's financial regulator, the European Securities and Markets Authority (ESMA), on Tuesday began forcing greater transparency of short positions by halving the threshold at which they must be disclosed.

"ESMA considers that the current circumstances constitute a serious threat to market confidence in the EU, and that the proposed measure is appropriate and proportionate to address the current threat level to EU financial markets," the regulator said in a statement Monday.

The U.K.'s Financial Conduct Authority (FCA) also issued a temporary ban on the shorting of 37 Belgian and Italian stocks following moves from respective regulators in both countries. Belgian regulator the Financial Services and Markets Authority (FSMA) announced a ban on shorts for a basket of stocks during Tuesday's trade in order to avoid what it termed a "disorderly decline" in markets.