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Monday 22 September 2008
More Regulators Move to Curb Short-Selling
More financial regulators across the globe are following the lead of the United States and Britain to curb the short sales of financial stocks in a move aimed at returning stability to financial markets. More in comments...
PARIS: More financial regulators across the globe are following the lead of the United States and Britain to curb the short sales of financial stocks in a move aimed at returning stability to financial markets.
On Sunday, the Australian Securities and Investments Commission said in a statement that it had expanded a curb announced Friday, which had outlawed “naked” short sales, to include a ban on the more traditional form of “covered” short-selling of all traded stocks.
Also Sunday, the Financial Supervisory Commission of Taiwan placed a ban on the short-selling of 150 stocks for two weeks starting Sept. 22.
Supervisors from Germany, France and Belgium curbed short sales of financial companies late Friday to defend banks from trading that has been blamed for pushing down share prices and worsening the market crisis.
Short-selling is a tactic designed to profit from falling share prices. It has been favored in particular by hedge funds and has been blamed for some of the huge gyrations in world stock markets in recent sessions.
Short-sellers borrow shares of the stock and sell them. If the price drops, they buy shares at the lower price to cover the borrowed ones, pocketing the difference. So-called naked short-selling occurs when sellers do not even borrow the shares before selling them and then look to cover positions immediately after the sale.
Analysts were not convinced that curbing short sales would necessarily help stabilize the shares of financial companies.
“It should give the market some breathing room, but is not the answer to reopening the money markets long-term,” RBC Capital Markets said in a research note published Friday. “Paradoxically, weak financial institutions that benefited from increased financial market volatility could now see a temporary reduction in revenues.”
The chairman of the U.S. Securities and Exchange Commission, Christopher Cox, on Friday announced a list of 799 financial stocks on which short-selling was banned until Oct. 2.
The Financial Services Agency in Britain also banned investors last week from taking new short positions in financial shares or adding to existing ones. The ban will remain in force until Jan. 16 and will be reviewed after an initial period of 30 days, the agency said.
The German financial regulator BaFin said late Friday that it had suspended short-selling of shares in 11 financial companies - including Deutsche Bank, the insurer Allianz and the exchange operator Deutsche Börse - to try to protect them from speculators until the end of the year.
The French and Belgian regulators barred most investors from overnight short positions in banks and insurers to “avoid all abusive arbitrage,” according to coordinated statements. The measures are effective Monday and will be in place for three months. Market makers, liquidity providers and block sales are exempt.
Similar steps were taken last week in Ireland, Canada, Switzerland and Portugal. Consob, the Italian stock market regulator, said it would increase scrutiny of short-selling and might tighten the rules on such sales.
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More Regulators Move to Curb Short-Selling
By Matthew Saltmarsh
21 September 2008
PARIS: More financial regulators across the globe are following the lead of the United States and Britain to curb the short sales of financial stocks in a move aimed at returning stability to financial markets.
On Sunday, the Australian Securities and Investments Commission said in a statement that it had expanded a curb announced Friday, which had outlawed “naked” short sales, to include a ban on the more traditional form of “covered” short-selling of all traded stocks.
Also Sunday, the Financial Supervisory Commission of Taiwan placed a ban on the short-selling of 150 stocks for two weeks starting Sept. 22.
Supervisors from Germany, France and Belgium curbed short sales of financial companies late Friday to defend banks from trading that has been blamed for pushing down share prices and worsening the market crisis.
Short-selling is a tactic designed to profit from falling share prices. It has been favored in particular by hedge funds and has been blamed for some of the huge gyrations in world stock markets in recent sessions.
Short-sellers borrow shares of the stock and sell them. If the price drops, they buy shares at the lower price to cover the borrowed ones, pocketing the difference. So-called naked short-selling occurs when sellers do not even borrow the shares before selling them and then look to cover positions immediately after the sale.
Analysts were not convinced that curbing short sales would necessarily help stabilize the shares of financial companies.
“It should give the market some breathing room, but is not the answer to reopening the money markets long-term,” RBC Capital Markets said in a research note published Friday. “Paradoxically, weak financial institutions that benefited from increased financial market volatility could now see a temporary reduction in revenues.”
The chairman of the U.S. Securities and Exchange Commission, Christopher Cox, on Friday announced a list of 799 financial stocks on which short-selling was banned until Oct. 2.
The Financial Services Agency in Britain also banned investors last week from taking new short positions in financial shares or adding to existing ones. The ban will remain in force until Jan. 16 and will be reviewed after an initial period of 30 days, the agency said.
The German financial regulator BaFin said late Friday that it had suspended short-selling of shares in 11 financial companies - including Deutsche Bank, the insurer Allianz and the exchange operator Deutsche Börse - to try to protect them from speculators until the end of the year.
The French and Belgian regulators barred most investors from overnight short positions in banks and insurers to “avoid all abusive arbitrage,” according to coordinated statements. The measures are effective Monday and will be in place for three months. Market makers, liquidity providers and block sales are exempt.
Similar steps were taken last week in Ireland, Canada, Switzerland and Portugal. Consob, the Italian stock market regulator, said it would increase scrutiny of short-selling and might tighten the rules on such sales.
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