Friday, August 12, 2011

Interim ban on short-selling in Europe


Steven Maijoor, chairman of the European Securities and Markets Authority

Source: Press TV
http://www.presstv.ir/detail/193541.html

The European Securities and Markets Authority (ESMA) has announced it would temporarily ban short-selling of financial stocks in many countries to avert the world market financial turmoil.

The France-based European market regulator, a body that coordinates the European Union's market policies , released a statement Thursday night saying that the negative bets, already banned in Greece and Turkey, would take effect on Friday in France, Belgium, Italy, and Spain, The New York Times reported.

"Today some authorities have decided to impose or extend existing short-selling bans in their respective countries," said the statement, according to Steven Maijoor, chairman of the ESMA.

"They have done so either to restrict the benefits that can be achieved from spreading false rumors or to achieve a regulatory level playing field, given the close inter-linkage between some EU markets," it added.

Amid fears of some governments like France that the negative bets on stocks would bring about a worldwide panic, European financial regulators have been discussing a continent-wide interim ban on short-selling in the past few days.

However, Britain, among some other countries, publicly slammed a short-sale ban.

"We have no plans to introduce a short selling ban," Christopher Hamilton, a spokesman for the UK Financial Services Authority, said on Thursday.

US regulators are expected to be widely affected by the announcement in Europe since investors with negative views on bank stocks will be forced to close their negative bets in Europe and might have to shift them to American banks.

During the financial crisis in 2008, European and US officials imposed a temporary ban on shorting financial stocks. The ban was meant to prevent bank stocks from falling further, but in time, stocks fell anyway.

"It's a bit like suggesting we take heart patients in the emergency room off of the heart monitor because you don't want to make doctors and nurses anxious about the patient," said Andrew W. Lo, a professor at the Massachusetts Institute of Technology.

In short-sales, a trader sells borrowed shares in hopes that they will decline in value before he has to buy them back to close out his loan. The difference in price is his profit, or loss.

Short-selling is the selling of a stock that the seller doesn't own. More specifically, a short sale is the sale of a security that isn't owned by the seller, but that is promised to be delivered.

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