23 July 2012

FT: Spain and Italy resume short selling bans

Regulators in Spain and Italy reactivated bans on short selling of equities, in response to increasing market jitters surrounding the fate of two of the eurozone's largest economies.

Spain’s Comisión Nacional del Mercado de Valores (CNMV) said that it had taken the decision to ban short selling on all stocks because of extreme volatility in European markets. But Consob, Italy’s market regulator, said its ban would apply only to banking and insurance stocks and was scheduled to last a week.

The ban applies to 29 bank and insurance stocks including Generali, UniCredit, Intesa Sanpaolo and Banca Monte dei Paschi di Siena. Also included in Consob’s decision are Unipol and Fondiaria-Sai, the two insurance companies that are each in the middle of €1.1 billion rights issues.

“Considering the fact that severe market tensions can threaten the stability of the financial system and the savings of investors, and given the extraordinary market conditions recorded during the sessions of July 2012, which were characterised by a significant increase in volatility and a sharp fall in prices”, it was necessary to ban short selling, said Consob..

Yields on Spanish government bonds continued their steep rise as the Bank of Spain unveiled data that showed the country’s economy contracted for another quarter in the three months to June.

Spain’s regulator said its ban, which will take immediate effect, was a temporary preventive measure and would stay in place for the next three months until October 23, although it could be renewed or lifted as required.

Analysts said the move was unsurprising, adding that previous bans had had very little noticeable impact.

“I understand why they are doing it but this is likely to be as ineffective as every other short selling ban”, said Gary Jenkins of Swordfish Research. “Short selling is not the real problem. The real problem is that nobody wants to buy bonds.”

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