According to Consob, Italy has once again banned short selling of stocks. Italy let its last ban on short selling expire on January 15. Spain has followed suit, as they have also banned short selling on all stocks for the next three months.
Banning short selling is a controversial method to stabilizing stock prices. Noted short seller, Jim Chanos, has previously argued against banning short selling, as he believes it hurts more than it helps.
The largest institutions that short the shares of banks and financial companies and purchase cds contracts are other banks and financial companies because of the interrelated nature of their credit risk. And when you go into that market and try to say we are going to stop the short selling because they think it’s going to help pricing, the opposite happens.
This ban is expected to last until this Friday, so it may be relatively short-lived in comparison to the last ban.
Spain has also banned the short selling on all stocks for the next three months, as they have followed Italy’s lead.
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