Consob bans short selling of Italian bank shares
07 July 2016 Rome
Image: Shutterstock
Italian financial services regulator Consob has been forced to impose multiple short selling bans on the shares of the country’s banks this week after the financial sector suffered fierce market turbulence.
A three-month ban on short sales was imposed for shares in Banca MPS, the country’s third largest lender, after its share price dropped from 30 cents (euro) to 27 cents in the first two hours of trading on Tuesday morning (7 July).
The ban was initially set to run for a single day on 6 July but it was subsequently extended to runs until 5 October.
In Consob’s statement on the decision, the regulator specified that the prohibition on net short positions bans both short selling on Banca MPS shares and short positions taken though single stock derivatives.
It applies to all transactions, irrespective of where they have been carried out (on an Italian or foreign trading venue or over-the-counter) and it affects market makers, too.
The ban does not apply to transactions in index-related instruments, taking into account the marginal weight of Banca MPS shares in financial indices.
The decision to extend the ban was endorsed by the European Securities Markets Authority, which stated: “The current circumstances related to Banca MPS constitute adverse events or developments which constitute a serious threat to market confidence in Italy and that the proposed measure is appropriate and proportionate to address the threat to Italian financial markets.”
Consob was also forced to enact a one-day shorting ban on share of communications provider Telecom Italia and Credito Valtellinese, an Italian co-operative bank on 7 July, after both business were embroiled in market turbulence.
Hermes Investment Management commented on the country’s troubles in a research note: “In the short-term, Italian banks find themselves in an increasingly difficult situation regarding their ongoing non-performing loans, which are equivalent to around 22 percent of the country’s GDP”.
It continued: “Last week we heard rumours of the Italian government bailing out the banks, but this would contravene EU rules which stipulate bail-in of equity and bond-holders prior to such a rescue.”
“Italy is less keen on this option, given that many of those that would be ‘bailed-in’ are retail investors (more than 50 percent in some cases). In the meantime, Italian bank shares continue to plunge and capital positions remain light.”
A three-month ban on short sales was imposed for shares in Banca MPS, the country’s third largest lender, after its share price dropped from 30 cents (euro) to 27 cents in the first two hours of trading on Tuesday morning (7 July).
The ban was initially set to run for a single day on 6 July but it was subsequently extended to runs until 5 October.
In Consob’s statement on the decision, the regulator specified that the prohibition on net short positions bans both short selling on Banca MPS shares and short positions taken though single stock derivatives.
It applies to all transactions, irrespective of where they have been carried out (on an Italian or foreign trading venue or over-the-counter) and it affects market makers, too.
The ban does not apply to transactions in index-related instruments, taking into account the marginal weight of Banca MPS shares in financial indices.
The decision to extend the ban was endorsed by the European Securities Markets Authority, which stated: “The current circumstances related to Banca MPS constitute adverse events or developments which constitute a serious threat to market confidence in Italy and that the proposed measure is appropriate and proportionate to address the threat to Italian financial markets.”
Consob was also forced to enact a one-day shorting ban on share of communications provider Telecom Italia and Credito Valtellinese, an Italian co-operative bank on 7 July, after both business were embroiled in market turbulence.
Hermes Investment Management commented on the country’s troubles in a research note: “In the short-term, Italian banks find themselves in an increasingly difficult situation regarding their ongoing non-performing loans, which are equivalent to around 22 percent of the country’s GDP”.
It continued: “Last week we heard rumours of the Italian government bailing out the banks, but this would contravene EU rules which stipulate bail-in of equity and bond-holders prior to such a rescue.”
“Italy is less keen on this option, given that many of those that would be ‘bailed-in’ are retail investors (more than 50 percent in some cases). In the meantime, Italian bank shares continue to plunge and capital positions remain light.”
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