France Rejects Naked Short Selling Ban

by Ulrika Lomas, Tax-News.com, Brussels

25 May 2010

In stark contrast to Germany’s Chancellor, French Finance Minister Christine Lagarde has expressed her belief that the euro is a solid, credible currency, and has ruled out any plans to impose a ban on the naked short selling of euro zone government bonds in France.

Finance Minister Lagarde has confirmed that France would not follow Germany’s lead in imposing a ban, despite receiving a request from the European Commission to consider the matter. Lagarde explained that a ban on the naked short selling of financial securities was imposed in France in 2008, and underlined the fact that there is currently a short selling ban on a dozen French securities. Germany, has, therefore, followed France in this respect, she remarked, adding that the difference between France and Germany is that France has not, and will not, elect to impose a ban on trading in government bonds.

Commenting on Germany’s latest announcement, Lagarde noted that such a decision should be taken during the course of negotiations at European level. Naked short selling enables stock market operators to sell stock that they do not yet possess, in the hope that they will be able to buy them back at a lower price, using sophisticated financial mechanisms.

Determined to curb speculation, Germany recently announced the introduction of a ban on high-risk financial market transactions from midnight on May 18 until March 31, 2011, including a ban on the naked short selling of shares, euro zone government bonds, and credit default swaps.

President of the European Commission, José Manuel Durao Barroso, welcomed Germany’s decision and invited other European countries to examine the possibility of a concerted action on the issue.

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