Will the short-selling ban come up short? | FT Alphaville

Will the short-selling ban come up short?

After a day of speculation and disagreement ESMA on Thursday evening announced “harmonised regulatory action” to ban short-selling of financials in Spain, France, Belgium and Italy. As signs of weakness go, it’s flashing with bright lights and sounding pretty discordant.

“Harmonised” is pure Panglossian Brussilian. Spain seems to have banned short-selling in all products related to financials, whereas France has limited it to equities. We’ll see how effective that is but previous efforts don’t bode well for the European regulators. Belgian and Italian details hadn’t been released at pixel time.

ESMA statement (emphasis ours):

European financial markets have been very volatile over recent weeks. The developments have raised concerns for securities markets regulators across the European Union. ESMA has been actively monitoring the markets over the last few weeks and has been exchanging information with national competent authorities on the functioning of the markets and the market infrastructure.

Given these recent market developments, ESMA wants to emphasise the requirements in the Market Abuse Directive (MAD) referring to 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. 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. While short-selling can be a valid trading strategy, when used in combination with spreading false market rumours this is clearly abusive.

In the area of short-selling regulation, many authorities already have either requirements for the disclosure of net short positions and/or bans of certain types of short sales in place. Recent developments have meant that all competent authorities have reinforced the monitoring of their markets and are keeping their regulatory requirements under review. ESMA has coordinated discussions between the national competent authorities, specifically on the content and timing of any possible additional measures necessary to maintain orderly markets.

Today some authorities have decided to impose or extend existing short-selling bans in their respective countries. They have done so either to restrict the benefits that can be achieved from spreading false rumours or to achieve a regulatory level playing field, given the close inter-linkage between some EU markets. These measures have been aligned as far as possible in the absence of a common EU legal framework in the area of short-selling and given the very different national legal bases on which such measures can be taken.

The following countries have today announced or will shortly announce new bans on short-selling or on short positions: Belgium, France, Italy and Spain. Information on these measures can be retrieved from the websites of the relevant competent authorities. The measures will take effect as of 12 August 2011.

The French financial regulator also announced details of its ban, which applies to financial stocks from Friday trading. It doesn’t apply a ban to CDS shorting — just the shares, as far as we can tell. This seems to only deal with half of the “nationalisation trade” we’ve heard talk of — shorting French banks on the assumption that the stressed sovereign will step in.  France may be fighting with one arm tied behind its back. Here’s the AMF statement (emphasis again ours):

Decision by the AMF Chairman pursuant to Article L. 421-16 II of the Monetary and Financial Code: Ban on taking net short positions in French securities of the financial sector (as listed hereunder)

The Chairman of the Autorité des marchés financiers (AMF), acting in accordance with Article L. 421-16 II of the Monetary and Financial Code, has decided to place a ban on creating any net short position or increasing any existing net short position, including intraday, by any person established or residing in France or in another country, in the equity shares or securities giving access to the capital of the following credit institutions and insurance companies:

– April Group

– Axa

– BNP Paribas


– CNP Assurances

– Crédit Agricole

– Euler Hermès

– Natixis

– Paris Ré

– Scor

– Société Générale

This decision shall enter into force as soon as it is published on this AMF website as from 22.45 today and shall remain in effect for a period of fifteen days. It may be extended beyond that date pursuant to the conditions provided in the aforementioned Article L. 421-16 II. This decision does not apply to financial intermediaries acting as market makers or liquidity providers when they are operating under a contract with the relevant market undertaking or with the issuer concerned, or when acting as counterparty for block trades in equities.

The AMF will publish a FAQ to deal with the technical questions raised by this decision.

And here’s the Spanish statement (translated using Google Translate). Note the specific references to derivatives:

August 11, 2011

The extreme volatility in stock markets go through Europeans, particularly share prices of financial institutions, is is clearly affecting the stability of markets and can disrupt your orderly functioning. In these conditions it is necessary to review the operational of stock markets in order to ensure the maintenance of financial stability. Given the above and other similar measures that supervisors Europeans are driving in a coordinated manner in the field of ESMA, the CNMV agrees:

Ban as a precautionary measure with immediate effect and for a transitional period to j under Article 85.2 of Law 24/1988 of 28 July on the Securities Market (LMV), the performance by any person or entity operations securities or financial instruments that involve the creation or increase of Spanish stocks short positions in the financial sector.

The ban will remain for a period of 15 days from the date, may be extended if deemed necessary. The interim ban applies to any transaction in shares or indices, including cash transactions, derivatives on exchanges or OTC derivatives, which involves creating a net short position or increase a existing, albeit intraday. Short position means those that result in positive economic exposure to a drop in price action.

Excluded from the injunction prohibiting operations that are performed by entities to develop market-making functions. Means such financial institutions or investment services companies, in response orders from clients or quoting prices as a result of supply and demand continuously in their capacity as members of secondary markets  official incurred temporarily, especially intraday short positions.

The shares or voting shares to which this agreement applies are to date current

Civic Banking, SA

Banco Bilbao Vizcaya Argentaria, SA

Banco de Sabadell, SA

Banco de Valencia SA

Spanish Banco de Credito, SA




Spanish Banco Popular, Inc.

Banco Santander, SA

Bankia, SA

Bankinter, SA

Caixabank, SA

Caja de Ahorros del Mediterráneo

Grupo Catalana de Occidente SA

Mapfre, SA

Spanish Stock Exchanges and Markets, Inc.

Renta 4 Investment Services, Inc.

It is recalled that Article 99 of the Securities d it an offense very serious breach of the precautionary measures, among others, the letter j Article 85.2 of the Act

Related link:
Four European nations ban short selling – FT
Archive of short-selling posts – FT Alphaville