European Shorting Ban Extended

Short-selling bans on selected European bank stocks have been extended by regulators until the end of September in an unprecedented degree of regulatory co-ordination.

A broker works as his control screen shows a graph of activity on the French Stock Exchange in Paris.
A broker works as his control screen shows a graph of activity on the French Stock Exchange in Paris.

French, Spanish, Italian and Belgian regulators said the bans, which cover nearly 60 companies and were first introduced two weeks ago, were still necessary to calm excessive market volatility.

Short-sellers, who aim to profit from price falls, are a frequent target of regulators and politicians during market turmoil. The current clampdown came after the Autorité des Marchés Financiers, France’s regulator, became alarmed by a spike in the trading of bank stocks such as Société Générale, which slumped 15 per cent the day before the ban was agreed.

Regulators on Thursday said they would review the restrictions next month.

“The aim is to lift the ban as soon as market conditions allow it,” the AMF said.

An analysis of trading volumes by the Financial Times has shown that dealing in bank stocks across Europe nearly doubled in the five days preceding the ban as worries grew over banks’ stability.

Dealing in the banned stocks has since dropped 62 per cent from its pre-ban spike, according to Bloomberg data. This has however left trading at just three-quarters of its pre-spike average. The drop in liquidity implies investors will pay more to buy or sell those stocks.

Trading in the biggest European banks not covered by the ban also more than halved after the bans. Those stocks are now only 14 per cent below average for this year.

Thursday’s announcement also signalled an increasing willingness by regulators to work together under the umbrella of the European Securities and Markets Authority, the new pan-EU regulator. The rules, which have been tweaked over the past fortnight in response to investors’ questions, are now virtually identical across the jurisdictions in a sharp contrast to previous rule changes.

Reporting by Brooke Masters in New York, Peggy Hollinger in Paris, Giulia Segreti in Rome, Stanley Pignal in Brussels and Victor Mallett in Madrid