Sat, Aug 13, 2011 - Page 10 News List

Europe introduces short-selling ban

ALICE IN WONDERLAND:Experts said that the ban introduced by France, Belgium and Spain to protect domestic banks failed to address the root causes of investors’ concerns

Reuters, PARIS and MILAN

An index screen is reflected in a crystal bull figurine at the Warsaw Stock Exchange yesterday. European stock markets rose yesterday as a ban on short-selling financial shares prompted investors to creep back into battered banking shares, although concerns over the health of French banks kept the mood edgy.

Photo: Reuters

A piecemeal ban on the short-selling of financial stocks highlighted flaws in eurozone policy and investors said relief for bank stocks would be temporary in the absence of coordinated action by Europe’s governments.

France, Italy, Spain and Belgium imposed the ban, under which details varied according to country — while Britain, the Netherlands and Austria said they saw no need for action and Germany remained silent.

“It’s naive to think that this in some way helps things,” said Dipesh Patel, head of European equities at Espirito Santo Investment Bank. “The worry now is that this is a last-ditch attempt to keep stocks up against investor opinion.”

European markets have swung wildly this week on rumors about the health and funding needs of -indebted eurozone governments and more recently on some of its major banks, which have sent shares tumbling.

Yesterday morning the STOXX Europe 600 banking index yo-yoed, then crept steadily higher. By 8:49am it showed a 2.2 percent gain, helping the broader market to advance 3.8 percent.

French banks, at the center of much of the market’s attention and included in the ban on short-selling, were up: Societe Generale rose 1.2 percent, BNP Paribas added 1.4 percent and Credit Agricole gained 0.3 percent.

The banking index has fallen 36 percent from a peak in February and is down some 17 percent this month alone.

Short-selling is the process through which an investor borrows shares and sells them on the expectation their price will fall and they can then be bought back at a lower price.

However, market players said the ban did not tackle the root causes of investors’ concerns — joined-up, long-term fiscal policy in the eurozone — and pointed out that nervous mutual funds were currently behind the sell-off.

A crackdown on speculative short-selling is unlikely to arrest moves from institutional investors who have decided they have little stomach for big holdings in banks and indebted governments who might call on them again for emergency capital.

“Data from various regulators of late have shown there is no short-selling activity out of the norm,” said Davide Burani, financial analyst at Italian fund manager Horatius. “Investors are selling in Italy from fear. Italian banks are holding around 200 billion euros of Italian bonds.”

Alessandro Frigerio, a fund manager at Milan’s RMJ Sgr, said the ban could work if, combined with proposals from Tuesday’s meeting between French President Nicholas Sarkozy and German Chancellor Angela Merkel, it were to “give the idea that there could be a rescue for the euro zone and a rebound in the market.”

The European Securities and Markets Authority said short-selling combined with rumor-mongering created a strategy that was “clearly abusive.”

“Some authorities have decided to impose or extend existing short-selling bans in their respective countries,” it said late on Thursday. “They have done so either to restrict the benefits that can be achieved from spreading false rumors or to achieve a regulatory level playing field.”

France banned short selling on 11 financial stocks for 15 days, Spain said it would protect 16 stocks for 15 days, Belgium banned short selling of four financial stocks for an indefinite period and Italy said its ban covered 29 companies in the banking and insurance sector.

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