French, Italian and Spanish financial market regulators extended temporary bans on short selling introduced this month in a bid to stem market volatility.
Spain and Italy extended their bans through Sept. 30, regulators in both countries said in a statement. France’s Autorite des Marches Financiers said its ban may last until Nov. 11. The regulators all said they might lift the limits on short selling of financial stocks when the market stabilizes.
European bank stocks dropped 8 percent since the measures went into effect on Aug. 12, with shares of lenders, including Societe Generale SA, hitting their lowest levels since the credit crisis of 2008. Lawyers and investors have criticized regulators for failing to clarify the scope of the rules.
“If we’re going to endure another 30 days of this, then regulators must, as a matter of urgency, give the market additional clarity as to what is and what isn’t prohibited by the rules,” Darren Fox, a financial services lawyer at Simmons & Simmons LLP in London, said in a telephone interview. “The details are still too vague and there is still far too much confusion on what these bans actually cover.”
The initial bans introduced by France, Spain and Italy lasted 15 days. A similar rule introduced the same day in Belgium is indefinite.
The Bloomberg Europe Banks and Financial Services Index has fallen 8 percent since the ban first came into effect on Aug. 12. Societe Generale has dropped 10 percent and Unicredit SpA has fallen 14 percent during the period.
The Greek market regulator also said it would reassess its ban on short selling, which is scheduled to expire Oct. 7, “before the end of September.” Greece was the first country to institute a ban this month.
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.
“Short selling equities is not a significant danger to financial stability, so these bans are irrelevant,” Richard Portes, professor of economics at London Business School, said in an e-mailed statement. “The serious problem is speculation against financial institutions and sovereigns using naked credit default swaps. They should be banned.”
The bans show “officials’ nervousness in what are still quite thin financial markets in the face of deteriorating economic expectations,” Richard Reid, the International Centre for Financial Regulation’s director of research, said in an e-mail.
German Share Drop
German stocks and index futures tumbled as traders were whipsawed by speculation that regulators were poised to impose restrictions on the equity market, and amid concern the nation’s finances are deteriorating. The DAX Index retreated 1.7 percent to 5,584.14 at the 5:30 p.m. close in Frankfurt, rebounding from an earlier drop of 4 percent.
German financial markets regulator BaFin said it wouldn’t expand its existing curbs on short selling. The watchdog has “all the regulation in place” regarding short selling in equities, press officer Dominika Kula said.
The Finance Ministry, which oversees BaFin, also denied talk that it planned to extend the country’s ban on naked short-sales of sovereign debt and financial stocks to all transactions.
The U.K. Financial Services Authority reiterated today that it has no plans to introduce any restrictions on short selling beyond current disclosure rules.