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31st Oct 2020

Four EU states ban short-selling to curb financial turmoil

  • Short selling has been blamed for adding to volatility in the financial markets (Photo: Donald Townsend)

Four EU countries have slapped a temporary ban on short-selling in an effort to dampen down wild swings in trades in banking stocks.

The European Securities and Markets Authority, the bloc’s market supervisor, announced on Thursday (11 August) that Belgium, France, Italy and Spain had made the move, a ban that will last for 15 days.

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Short selling traders in effect make a bet that certain shares will decline in value. The practice has been blamed for exacerbating volatility in already tumultuous markets.

At the height of the financial crisis in 2008, European and American market supervisors made similar moves.

Esma itself does not have the power to impose the ban, but can co-ordinate the institution of national bans.

The language the authority used in a communique sharply attacked unscrupulous traders it accused of profitting from the spread of false information.

“ESMA wants to emphasise ... the prohibition of the dissemination of information which gives, or is likely to give, false or misleading signals as to financial instruments, including the dissemination of rumours and false or misleading news,” the authority warned.

“European competent authorities will take a firm stance against any behaviour that breaches these requirements and ESMA will support national authorities to act swiftly against any such behaviour which is clearly punishable.”

The authority said that it had been exchanging information with national supervisors over recent weeks and heightened its monitoring of market activity.

The ban, which countries such as Germany and the UK failed to embrace, takes effect Friday.

Greece imposed a two-month short-selling ban earlier in the week.

The news comes as the leaders of France and Germany announced they would hold an emergency meeting on Tuesday to discuss the spreading eurozone debt crisis.

Paris said that the pair are to draft fresh “joint proposals” on eurozone governance.

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