2008 REPLAY: Europe Moves To Ban Short Selling As Crisis Spreads

italy riot, berlusconi, december 2010

[credit provider=”AP”]

UPDATE: Italy will report a ban on short selling tonight, according to reports on CNBC and Zero Hedge. France is rumoured to be preparing a similar action.The European Securities and Markets Authority is considering a ban on short selling, reports The New York Times.

The authority would ban betting against just financial stocks or stocks in general. It could focus the ban on naked short-selling, in which the party making the short does not borrow the share it is shorting.

The ban would only be in place till markets calm down.

Turkey became the third country trying to stem short-selling today, when it raised the minimum equity required to initiate a short-sale on the Istanbul Stock Exchange to 70%, from the previous 50%, according to Bloomberg.

Earlier this week, South Korea initiated a three month ban, and Greece, a two month ban on short selling, as regulators are trying to prevent speculation, after a massive drop in global stock markets. South Korea does however have a complete ban on naked short sales.

In 2008, several countries banned short-selling in an ultimately impotent attempt to control the crisis, but not everyone thinks a blanket ban works however. Analysts argue that it hasn’t worked in the past, because it singles out a group that may not have been that active during the trades, and because it won’t prevent panicked investors from selling their shares.

“Every time we have had a short selling ban, the sector it is supposed to protect has collapsed,” one hedge funder told the FT, adding that the measure seemed designed to stop hedge funds make money rather than stopping a collapse.

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