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Why Naked Short Ban Might Be Useless

Last week, German Chancellor Angela Merkel and French President Nicolas Sarkozy proposed a Europe-wide ban on "naked" short selling as a way to calm the markets. But how will the prohibition affect trading? Laurent Maruani from French business school HEC Paris, and Dietmar Bahr from the German Association for Alternative Investment, shared their insights.

“An agreement between Germany and France is symbolic and could be effective in order to avoid a 'Lehman Brothers syndrome' in Europe,” Maruani told CNBC.

The act of “naked” short-selling is controversial as it allows manipulators a chance to artificially force stock prices down to a level that doesn’t reflect true supply and demand. Germany banned the practice in May on government debt and large financial firms as a way to stabilize the European bond market.

No Effect?

Bahr described the action as a “political measurement” for the German market.

The move "was not well received by the population," according to Bahr, as investors "were feeling they were forced to do something,” rather than a sense of protection and stability.

“And the question is: Are there going to be any real effects on markets in general?”

“So this is a situation, which is a combination out of the current situation of the German government, the domestic market and in view of the population because they are forced to do something.”

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Disclosures:

No immediate information was available for Bahr or Maruani.

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