Spain and Italy have extended their bans on short selling until September 30, while France extended its ban until as late as November 11, according to reports.
The three countries, along with Belgium, announced earlier this month that they would ban short selling on financial stocks to avoid tumbling stock prices. Most agree the bans have done little to stem any volatility in the markets, with industry participants speaking out against the bans and going so far as to condemn them.
Information provided to Global Custodian by DataExplorers ran counter to the claims of European market regulators, by proving that short selling activity on financial stocks was no more volatile in early August than at any other time in the year.
Rumors swirled in recent days that Germany would institute a ban on short selling as well, but the market regulator has reportedly denied the claims. Earlier in the month it was believed to be considering a ban on naked short selling.
These hasty decisions are not only devoid of theoretical basis, but also fly in the face of empirical evidence, the EDHEC-Risk Institute said in a statement earlier this month. Academic studies, including work by EDHEC-Risk Institute researchers, have documented the positive contribution of short-sellers to market efficiency and shown that constraining short sales significantly reduces market quality by reducing liquidity and increasing volatility and can have unintended spillover effects.
The institute also said it denounces the decisions to impose or extend short-selling bans as a political smokescreen that is likely to be counterproductive, both directly by disrupting market functioning and degrading market quality at a most testing time, and indirectly by further fuelling defiance vis–vis sovereign states and the continued inability of their political institutions to address the causes of the current crisis.
Korea, Greece and Turkey have implemented short selling bans recently as well, with the tally of bans resembling the move in 2008 by many market regulators worldwide to ban short selling following the collapse of Lehman Brothers.
(CG)