Spain and Italy have extended the ban on short selling of stocks of banking and insurance in force since August due to volatile market, capital market regulator ESMA European Union said on Wednesday (09/28/2011).
short selling
“The action in close collaboration and discussion following the evaluation conducted under the coordination of ESMA, Spanish and Italian regulators have decided to extend the ban because it will expire on 30 September,” said European inspectors.
Meanwhile, the French market regulator AMF confirmed, banned short selling of 10 stocks will remain in place until November 11. They will continue to monitor the market and its development and may decide to revoke the ban if market conditions allow.
ESMA can only recommend that the national market authorities to take action.
In short selling stocks, investors are essentially betting that prices will fall. They borrow shares from a broker, sell it, and then buy it back at a cheaper price is expected to pocket the difference.
Supporters claim this way, the practice of allowing investors to hedge risk, but critics say it only adds to the pressure drop in a falling market and no real purpose beyond helping speculative trading for short term gains. This practice was temporarily banned in many countries at the top of the global economic crisis.
A ban imposed last year only by the German financial regulator, without informing other countries of the Group of 20 (G-20), sparked outrage European partners, Berlin, and rattled markets around the world.
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