European countries extend short-selling bans
17 April 2020 Paris
Image: Viewgene/Shutterstock.com
European regulators that imposed restrictions on short selling in March have confirmed plans to renew the bans for a second month, despite mounting calls to re-assess their usefulness in reducing downward pressure on equities markets.
National competent authorities in France, Spain, Austria, Belgium, and Greece had been scheduled to expire in the coming days but said late on Wednesday that they would extend them until mid-May.
Following coordination by the European Securities and Markets Authority (ESMA), the renewal process has been aligned and the renewal decisions will be in place until 18 May with the possibility of further renewals.
The EU’s securities markets regulator issued its opinions agreeing to the renewal of the emergency restrictions on short selling and similar transactions by the Finanzmarktaufsicht of Austria, the Financial Securities and Markets Authority of Belgium, the Autorité des Marchés Financiers of France, the Hellenic Capital Market Commission of Greece and the Comisión Nacional del Mercado de Valores of Spain.
The authorities argue that restrictions were necessary to stabilise stock prices, after fears over coronavirus reduced European shares in March.
In a statement, ESMA acknowledges that the bans can be lifted earlier if the risks of a loss of market confidence are reduced or maybe further extended after the deadline considering market conditions.
ESMA says it considers that the proposed measures are justified by current adverse events or developments which constitute a serious threat to market confidence and financial stability and that they are appropriate and proportionate to address the existing threat to market confidence in those five markets.
Elsewhere, the logic underpinning the bans is being challenged by a mounting body of academic and market research which indicates that such moves by regulators do not achieve their intended purpose and are actually damaging market integrity in the long term.
Most recently, the International Securities Lending Association’s newly-launched Council for Sustainable Finance has released its first 'position paper' to address the role of lending and short selling during periods of heightened volatility.
The paper references more than a dozen studies by banks, academics and market authorities that investigated, among other things, the consequences of the bans applied after the 2008 financial crisis.
The findings included evidence that the bans applied at that time ended up damaging market liquidity and distorted price discovery, while not stopping the tumble in share price values across the board.
The sum total of the evidence, the council argues, should give European regulators pause for thought before locking short sellers out of their markets for too long.
Moreover, market data indicates that utilisation of shares available to lend as a percentage has remained a single digit throughout the worst of last month’s market sell-off, which further suggests that short sellers were not the main drivers of the crash.
National competent authorities in France, Spain, Austria, Belgium, and Greece had been scheduled to expire in the coming days but said late on Wednesday that they would extend them until mid-May.
Following coordination by the European Securities and Markets Authority (ESMA), the renewal process has been aligned and the renewal decisions will be in place until 18 May with the possibility of further renewals.
The EU’s securities markets regulator issued its opinions agreeing to the renewal of the emergency restrictions on short selling and similar transactions by the Finanzmarktaufsicht of Austria, the Financial Securities and Markets Authority of Belgium, the Autorité des Marchés Financiers of France, the Hellenic Capital Market Commission of Greece and the Comisión Nacional del Mercado de Valores of Spain.
The authorities argue that restrictions were necessary to stabilise stock prices, after fears over coronavirus reduced European shares in March.
In a statement, ESMA acknowledges that the bans can be lifted earlier if the risks of a loss of market confidence are reduced or maybe further extended after the deadline considering market conditions.
ESMA says it considers that the proposed measures are justified by current adverse events or developments which constitute a serious threat to market confidence and financial stability and that they are appropriate and proportionate to address the existing threat to market confidence in those five markets.
Elsewhere, the logic underpinning the bans is being challenged by a mounting body of academic and market research which indicates that such moves by regulators do not achieve their intended purpose and are actually damaging market integrity in the long term.
Most recently, the International Securities Lending Association’s newly-launched Council for Sustainable Finance has released its first 'position paper' to address the role of lending and short selling during periods of heightened volatility.
The paper references more than a dozen studies by banks, academics and market authorities that investigated, among other things, the consequences of the bans applied after the 2008 financial crisis.
The findings included evidence that the bans applied at that time ended up damaging market liquidity and distorted price discovery, while not stopping the tumble in share price values across the board.
The sum total of the evidence, the council argues, should give European regulators pause for thought before locking short sellers out of their markets for too long.
Moreover, market data indicates that utilisation of shares available to lend as a percentage has remained a single digit throughout the worst of last month’s market sell-off, which further suggests that short sellers were not the main drivers of the crash.
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