France, Italy, Spain Ban Short Selling to Curb Market Plunge
France, Italy, Spain Ban Short Selling to Curb Market Plunge
(Bloomberg) -- Regulators in France, Italy and Belgium banned short selling in some stocks for Tuesday’s session, aiming to curtail the plunge in equity markets driven by the coronavirus outbreak.
France’s AMF halted such trades in 92 stocks, while Italy’s Consob blocked the transactions in shares of 20 companies and Belgium’s FSMA imposed a similar restriction. Spain went further, telling market participants late Monday they couldn’t bet on share declines for a month, and French Finance Minister Bruno Le Maire said he would like to see that rule extended Europe-wide.
“We are standing ready to take stronger decisions if necessary,” Le Maire said on a phone briefing with reporters. “We want to avoid speculation on markets. We will use all the means available to us to protect our businesses.”
Short selling, in which traders sell borrowed shares with the aim of repurchasing them at lower prices to return to the lender, is controversial at the best of times. Proponents say it results in a more liquid, efficient market, and alerts investors to dodgy accounting or overhyped company prospects. Opponents accuse short sellers of being short termists who can destabilize companies by publicly criticizing accounting or management.
Shorts have had some notable successes lately: NMC Health Plc shares plunged after Muddy Waters Capital LLC made accusations of financial wrongdoing. Trading in the shares was then suspended, and the company said an internal investigation turned up evidence of suspected fraud in its accounts.
The U.K.’s Financial Conduct Authority declined to comment on a possible short selling ban in Britain, while Dutch regulator AFM said it continues to closely monitor developments in the financial markets.
In Switzerland, there are no plans to ban or limit short selling because the market is functioning as it should, according to a spokesman for the SIX stock exchange. Germany’s Deutsche Boerse has a mechanism, the volatility interruption, to prevent a disorderly drop in prices, a spokesman said by email, so a ban on short selling “is not to be expected.”
Madrid, as well as Italy, had already ordered a one-day ban on short selling in the March 13 sessions.
More Information
The European Union’s market regulator on Monday ordered hedge funds and other traders to disclose more information when they bet that stocks will decline and signaled that more restrictions could come soon. Traders now must inform regulators when their net-short positions account for at least 0.1% of a company’s share capital, compared with 0.2% previously, according to the Paris-based European Securities and Markets Authority.
The practice was already under attack before the stock market started tanking in February. French politicians prepared a report last year on ways to rein in short sellers and activist investors, and German authorities began an investigation into speculators who criticized the accounting of payments company Wirecard AG.
The market meltdown makes stricter short-selling regulation “more necessary than ever,” Eric Woerth, the president of the French National Assembly’s Finance Commission and a co-author of the French report, said in a phone interview Monday. “It’s time to get moving.”
--With assistance from Beth Mellor, Rodrigo Orihuela, Silla Brush, Jan-Patrick Barnert and William Horobin.
To contact the reporters on this story: Phil Serafino in Paris at pserafino@bloomberg.net;Albertina Torsoli in Geneva at atorsoli@bloomberg.net
To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Paul Jarvis
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