The Federal Financial Supervisory Authority has on Tuesday temporarily banned naked short sales of debt securities issued by eurozone countries for trading on domestic stock exchanges in the regulated market. It has also temporarily banned so-called credit default swaps (CDS) where the reference bond and liability are from a eurozone country, and which does not serve to hedge against default risk (naked CDS).
In addition, BaFin has banned naked short sales in the following financial sector companies:
AAREAL BANK AG
DEUTSCHE BANK AG
DEUTSCHE BÖRSE AG
DEUTSCHE POSTBANK AG
GENERALI Deutschland HOLDING AG
HANNOVER RÜCKVERSICHERUNG AG
MÜNCHENER RÜCKVERSICHERUNGS-GESELLSCHAFT AG
These bans apply from 19 May 2010, 00:00, until 31 March 2011, 24:00, and will be reviewed.
BaFin justifies these steps given extraordinary volatility in debt securities issued by eurozone countries. Furthermore, credit default swaps on the credit default risk of several countries in the eurozone has increased significantly. Against this background, massive short sales of the affected debt securities and the conclusion of naked credit default risk on eurozone countries had led to excessive price shifts, which could have led to significant disadvantages for financial markets and have threatened the stability of the entire financial system.
Faced with these circumstances, BaFin has also banned naked short sales within the selected financial institutions.
For any interested, BaFin had previously introduced a ‘transparency system for net short selling positions‘, and found ‘no evidence of massive speculation against Greek bonds‘ in the CDS market.
(H/T Joseph Cotterill)
Die Leerverkäufer sind kaputt (updated) – FT Alphaville
Short-selling rules, the world tour – FT Alphaville
The scale of sovereign short-selling – FT Alphaville
BaFin says no evidence of malign Greek CDS speculation – FT Alphaville