Bloomberg News

Spain, Italy Extend Bans on Short Selling of Bank Stocks

September 29, 2011

(Adds Wellington, Discovery Capital short sales in 10th paragraph.)

Sept. 29 (Bloomberg) -- Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility.

The European Securities and Markets Authority announced the extension by the two countries in an e-mailed statement. The Spanish ban will remain “until the market conditions allow it” to be lifted, the country’s financial regulator said in its statement. Italy’s restriction, and another enacted by France in August, will both last until Nov. 11.

The Bloomberg Europe Banks and Financial Services Index has fallen 10 percent since the bans first took effect on Aug. 12. Societe Generale SA has dropped 18.5 percent and Unicredit SpA has fallen 26.6 percent during the period. The initial bans, introduced by the countries to reduce market fluctuations in August, lasted 15 days. A similar rule introduced the same day in Belgium is indefinite.

To use short-selling bans for “prolonged periods may distort required market adjustments,” Richard Reid, the International Centre for Financial Regulation’s director of research, said in an e-mail. “It is not even clear how effective such bans are. After all, we have seen some really dramatic market movements in recent weeks when these bans have been in place.”

French Coordination

Short-sellers sell borrowed shares with plans to buy them back later at a lower price, a practice politicians and some investors blame for roiling markets.

“We work in close coordination under ESMA reviewing market conditions and impact of the August ban, will continue to monitor and could lift if conditions warrant,” the French regulator, the Autorite des Marches Financiers, said in an e- mailed statement.

The Greek market regulator has also said it would reassess its ban on all short selling of equities, which is scheduled to expire Oct. 7, “before the end of September.” Greece was the first country to ban short-selling, introducing restrictions four days before France, Italy and Spain.

“The ban has only succeeded in drying up liquidity, increasing volatility and those stocks subject to it will be worse performers,” said Simon Maughan, head of sales and distribution at MF Global Ltd. in London. “That is what this ban has achieved.”

The prohibitions don’t force investors to close existing short positions, and a number of investment funds continue to maintain them in bank stocks, according to regulatory filings.

Wellington Management Co. LLP, for example, has disclosed a 3.6 percent short position in Spanish lender Bankinter SA.

Discovery Capital Management LLC has a 1 percent short holding in Banco Popular Espanol SA, Spain’s fifth-largest traded bank and Wellington has sold short 1.8 percent of Banco Sabadell SA, Spain’s sixth-biggest bank, according to filings with Spain’s market regulator.

--With assistance from Emma Ross-Thomas and Todd White in Madrid, Sonia Sirletti in Milan, Heather Smith in Paris and Gavin Finch in London. Editors: Christopher Scinta, Peter Chapman

To contact the reporters on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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