Four EU Countries Ban Short-Selling Of Bank Shares

by Ulrika Lomas, LawAndTax-News.com, Brussels

15 August 2011

Given the volatility of European bank shares recently, the European Securities and Markets Authority (ESMA) has announced harmonizsed action against their short selling by the national financial authorities of Belgium, France, Italy and Spain, with effect from August 12, 2011.

ESMA confirmed that recent developments in bank share prices have raised concerns for securities markets regulators across the European Union (EU). It said that it has been actively monitoring the markets over the last few weeks and has been exchanging information with national competent authorities on the functioning of the markets and the market infrastructure.

ESMA itself has emphasized the requirements in the Market Abuse Directive (MAD) referring to the prohibition of the dissemination of information which gives, or is likely to give, false or misleading signals as to financial instruments, including the dissemination of rumours and false or misleading news. “While short-selling can be a valid trading strategy,” it added, “when used in combination with spreading false market rumours this is clearly abusive.”

In the area of short-selling regulation, many EU financial authorities already have either requirements for the disclosure of net short positions and/or bans of certain types of short sales in place. It was confirmed that recent developments have meant that all competent authorities have reinforced the monitoring of their markets and are keeping their regulatory requirements under review.

ESMA has coordinated discussions between the national competent authorities, specifically on the content and timing of any possible additional measures necessary to maintain orderly markets, and the four countries have decided to impose or extend existing short-selling bans in their respective countries.

These measures have been aligned as far as possible in the absence of a common EU legal framework in the area of short-selling and given the very different national legal bases on which such measures can be taken. They apply, in each case, to the shares of a specified list of financial institutions listed on their respective national stock exchanges.

For example, Belgium’s Financial Services and Markets Authority has extended its existing rules governing the short selling of financial shares on Euronext. Existing measures contained a ban on uncovered transactions and an obligation to publish any net economic short position in excess of 0.25% of the share capital of a financial institution.

As from August 12, the notion of "uncovered transactions" is extended so that coverage with borrowed shares can no longer be considered full coverage. Therefore, it is now prohibited to take a net economic short position by any means whatsoever, or to extend such a position to the shares of a financial institution. Existing net economic short positions do not fall within the scope of this ban, but they may not be increased.

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