Europe Bans Short Selling
All that volatility in the market couldn't possibly be conveying important information, after all. The government knows best.
The European Securities and Markets Authority (ESMA) said on Thursday that short-selling combined with rumor-mongering created a strategy that was "clearly abusive."
In an interview with Reuters TV on Friday, ESMA Chairman Steven Maijoor added the curbs would be in place for "a while" but that they would not be permanent.
"There are no concrete plans at this stage for other countries, but we cannot rule out that that might change in the coming days and weeks and months," Maijoor said.
France banned short selling on 11 financial stocks for 15 days, Spain said it would protect 16 stocks for 15 days, Belgium banned short selling of four financial stocks for an indefinite period and Italy said its ban covered 29 companies in the banking and insurance sector.
Banks on the list included France's BNP Paribas and Societe Generale, and Spain's Santander and BBVA.
French Finance Minister Francois Baroin welcomed the ban and said it highlighted the government's commitment to ensuring financial stability, avoiding market abuses and fighting against all forms of speculation.
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Sep '10
Re: Europe Bans Short Selling
This announcement is just one more manifestation of the fear that is permeating markets and government. It never occurs to government officials that they are reacting to fear just as the sellers that are causing the market to dive are. I have thought we are on the verge of a large sell off and this seems to me to be one more confirmation of this. PS: If we get this sell off gold will more than likely be part of it. Then you can write a post saying, “better late than never.”
Jun '11
Re: Europe Bans Short Selling
"French Finance Minister Francois Baroin welcomed the ban and said it highlighted the government's commitment to ensuring financial stability, avoiding market abuses and fighting against all forms of speculation."
Fighting against all forms of speculation.
Yes, Heavens, we can't have speculators now, can we? Indeed, the very notion of someone trying to make a dollar out of fifty cents is just so reprehensible.
Apr '11
Re: Europe Bans Short Selling
“There are those who say the upcoming short selling ban in all stocks in Italy and France, which according to CNBC will take place as soon as after the close today, or in one hour, will be beneficial to stocks. Then there are facts. To those who may have forgotten, on September 18, 2008 the SEC banned the shorting of all financials here in the US. Below is a chart of the carnage that ensued… The same chart is coming to Europe first. End result: 48% drop in under a month.”
http://www.zerohedge.com/news/here-what-happened-when-sec-banned-shorting-financial-companies-2008
Apr '11
Re: Europe Bans Short Selling
“Proving once again the nobody ever learns from the past, and is guaranteed to repeat the worst mistakes thereof, the NYT has reported what Zero Hedge noted less than a day ago when we said that a “Eurowide short selling ban now appears imminent” with a report that “Europe Considers Ban on Short Selling.” What this means is that transatlantic panic is really about to spike, and the next imminent step is a total collapse of European capital markets. European regulators should be bound and quartered for even considering this stupidity which will destroy price discovery and lead everyone to dump their holdings ahead of a resumption of the Lehman bankruptcy PTSD flashbacks. Also making short covering impossible will remove the only natural downside market buffer. Oh well, if they want to blow themselves up, so be it. “
Zerohedge
Jun '10
Re: Europe Bans Short Selling
They change the rules in the middle of the game, and then wonder why the players have so much anxiety.
Re: Europe Bans Short Selling
Exactly right. Most European markets had short sale bans in 2008 as well.
Jun '11
Re: Europe Bans Short Selling
Succinctly put. Shorts and longs together create the liquidity that allows price discovery.
Regulators don't understand what short positions do for an auction.
Sep '10
Re: Europe Bans Short Selling
I view the entire worldwide financial crisis as an enormous failure of the regulatory apparatus of governement. It seems to me that there are legitimate issues in the CDS markets and in the futures markets that need prudent regulation but all you get are knee jerk reactions for political effect. The ESFS or whatever its called may get funded and allow the EU to buy a little time or it may not but it is interesting to also see the simple rise of margin requirements on gold futures and the fall in gold yesterday as the sort of simple, clear rule change that could be highly effective in preventing a bad outcome. I think gold was on the verge of doing what silver did and it seems to have prevented that. Time will tell.
Jun '10
Re: Europe Bans Short Selling
I'm no financial expert, but for every short seller, isn't there also a long seller? It takes two to tango.
Jun '11
Re: Europe Bans Short Selling
I'm rusty on these things but yes, in a healthy market, the activity back and forth creates the liquidity for the market to function.
A short begins his journey by borrowing shares from a firm or a trading desk and then turning around and selling those shares. The proceeds from the shares go into a kitty, a margin account which account is visible to and can be accessed by the firm from which the short seller borrowed the shares.
So a short sale by definition creates selling pressure.
In rapidly falling markets, selling pressure is amp'ed up by the fact that a ton of traders sell short.
However, those short sales eventually need to be covered and they are covered by re-purchasing shares. I would guess that's part of the reason why you get these huge lifts from climactic market bottoms. Not only is smart money moving to buy but also shorts have to rapidly cover.
Eliminating shorts from a market removes potential buyers. Dangerous.
Sep '10
Re: Europe Bans Short Selling
Anything that gets sold, someone else buys, at a lower price if there are more sellers than buyers so the argument against short sellers is that they are somehow causing the drop in prices rather than merely taking advantage of it. Many short sellers have uncovered and reported on bad things that should have been reported on...see _The Big Short_ but many short sellers also over state the negative and sometimes they out right lie, just like many longs who are "talking their book" all of that misses the point which I believe is the problem that because of structural, regluatory, issues in derivitives markets such as CDS and futures, it is possible for these markets to be manipulated and for trading to take place with little or no capital and no transparency. Ban on short selling does not change that one bit.