Germany Approves Naked Short Selling Bill

by Ulrika Lomas, Tax-News.com, Brussels

08 June 2010

Determined to curb speculation, the German government has drafted a bill which widens the limitations on short selling implemented in May.

Issued by BaFin, Germany’s financial supervisory authority, the original order prohibited the naked short selling of shares in the country’s ten leading financial institutions, along with the naked short selling of euro-zone government bonds. It also banned the trading of naked Credit Default Swaps (CDS) on the default risks of states within the eurozone.

Widening these provisions, the government’s new bill provides for a ban to be imposed on the naked short selling of all German shares, on the naked short selling of euro-zone government bonds, and for a ban on the speculative trading of credit derivatives of euro-zone sovereign bonds.

Under the new rules, the German Ministry of Finance will be authorized, if necessary and by decree, to apply more precise regulations and individual exceptions to the legal ban. The federal finance ministry and BaFin will both be empowered to ban the shorting of other financial instruments if a need for swift action arises.

In a bid to improve transparency, the bill states that BaFin must be informed in future of certain naked short sales of assets and notes that there will be mandatory public disclosure of larger short-sale holdings.

The Finance Ministry has emphasized that the ban on the short selling of shares and debenture bonds will only apply to stocks and shares that are traded on the German stock exchange in the regulated market.

The new bill is expected to be approved by both houses of parliament in July.

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