Europe takes aim at short-selling to settle markets

Germany on Friday called for a Europe-wide ban on short-selling shares after four of its EU partners banned the speculative practice for two weeks to combat "false rumours" rocking the markets. Berlin said it supported measures announced by France, Italy, Spain and Belgium to stop short-selling in bank shares but urged Europe to go further to calm the volatility. Britain, however, said it had no plans to follow suit. "The German government has been monitoring the problem of short-selling for some time and thus banned naked short-selling in Germany last year. In addition we are calling for a broad short-selling ban in Europe," a finance ministry spokesman said. "It is the only way to tackle destructive speculation convincingly," he said in an e-mailed message. The European Securities and Markets Authority (ESMA) said in a statement late Thursday that France, Italy, Spain and Belgium would "announce new bans on short-selling or on short positions." This aims 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." The ban echoes steps taken at the height of the global financial crisis sparked by the collapse of Lehman Brothers in 2008 and reflects deep concern over the current turmoil as Europe tries to tame a deepening debt crisis. When investors opt to short sell stocks they are betting that they will fall in price, allowing them to buy them later much cheaper and pocket the difference. Supporters claim the practice allows investors a hedge against risk but critics say it only adds to the downward pressure in falling markets and serves no real purpose beyond a grab for short-term profit. Naked short-selling, the practice Germany stopped last year on certain securities, can be even riskier because the trader does not borrow the stock or bond before it is traded. In France, the chairman of the Financial Markets Authority (AMF), Jean-Pierre Jouyet, told AFP it had decided to ban short-selling of 11 financial sector companies for two weeks. Stock markets continued volatile Friday but in narrower ranges after wild swings this week as France, the eurozone's second largest economy, was dragged into the debt quagmire alongside Italy and Spain after Greece, Ireland and Portugal had to be bailed out. The ESMA said "European financial markets have been very volatile over recent weeks. The developments have raised concerns for securities markets regulators across the European Union," singling out misleading rumours as cause for concern. he banks, and French banking giant Societe Generale in particular, have been among the hardest hit by concerns over their exposure to Greek debt, with many lenders reporting increased provisions on their loans to Athens. The provisions have gone down badly in fearful markets where speculation about the financial health of the banks has been rife despite the lenders and the authorities' efforts to reassure investors that there is no underlying problem. "While short-selling can be a valid trading strategy, when used in combination with spreading false market rumours this is clearly abusive," the EMSA said. AMF head Jouyet said that the decision had been taken jointly "because, in the different European countries, we have to face up to rumours which are unfounded and which interfere with the smooth running of the markets." Britain's Financial Services Authority said Friday that it had no plans for a similar ban because the current system was transparent enough. "We have an existing short-selling disclosure regime around financial stocks in place and we continue to monitor the activity in our markets accordingly," it said. The German banking association meanwhile called for a "reasonable, European-wide" policy on short-selling as opposed to a "blanket ban."