Italy bans short selling in bank shares after indecisive election
27 February 2013 Milan
Image: Shutterstock
Italy’s financial markets regulator banned short selling of shares in major Italian banks after an election result caused shares in them to drop sharply.
The country’s general election results on 25 February pointed towards a hung parliament—where no single party gains a majority of cast votes and so one or more must team up to form a government—resulting in the departure of current prime minister, Mario Monti.
In a press conference, Monti said that he hoped the vote would benefit the Italian people and calm financial markets.
But shares in Italian banks on Milan exchanges fell sharply in response to the news that a hung parliament was likely in the country, leading financial markets regulator Consob to ban short selling of four of them on 26 February.
The short selling of shares in Banco Popolare, Mediolanum, Banca Carige and Intesa Sanpaolo is prohibited for the entire trading day of 27 February, although it does not apply to market making.
In statements, Consob blamed significant fall in prices of the shares.
David Lewis, EMEA head of SunGard Astec Analytics, said that short selling does not increase volatility in markets and “banning it can actually increase it”.
“Bans on short selling are often politically driven and usually a sign of underlying economic problems. Many studies have shown that such bans do little to support share prices whilst damaging liquidity and widening spreads which are both bad news for investors. Short selling allows proper price discovery and is part and parcel of an efficient capital market.”
The UK FSA also banned short selling in Banco Popolare, Mediolanum, Banca Carige and Intesa Sanpaolo shares on all UK exchanges on 27 February “following a significant price movement and in consultation with another competent authority".
Arguing against the effectiveness of short selling bans, Lewis added: “They say in war that the wrong action is usually better than inaction. Perhaps this is the case here.”
“Many European countries have previously imposed bans on short selling. Our own study of the short selling bans in Spain (which were finally lifted at the end of January) showed there was no real change in the volatility of the market for the duration of the ban. It also showed little correlation between the direction of share price movement and the subsequent imposition of a ban.”
The country’s general election results on 25 February pointed towards a hung parliament—where no single party gains a majority of cast votes and so one or more must team up to form a government—resulting in the departure of current prime minister, Mario Monti.
In a press conference, Monti said that he hoped the vote would benefit the Italian people and calm financial markets.
But shares in Italian banks on Milan exchanges fell sharply in response to the news that a hung parliament was likely in the country, leading financial markets regulator Consob to ban short selling of four of them on 26 February.
The short selling of shares in Banco Popolare, Mediolanum, Banca Carige and Intesa Sanpaolo is prohibited for the entire trading day of 27 February, although it does not apply to market making.
In statements, Consob blamed significant fall in prices of the shares.
David Lewis, EMEA head of SunGard Astec Analytics, said that short selling does not increase volatility in markets and “banning it can actually increase it”.
“Bans on short selling are often politically driven and usually a sign of underlying economic problems. Many studies have shown that such bans do little to support share prices whilst damaging liquidity and widening spreads which are both bad news for investors. Short selling allows proper price discovery and is part and parcel of an efficient capital market.”
The UK FSA also banned short selling in Banco Popolare, Mediolanum, Banca Carige and Intesa Sanpaolo shares on all UK exchanges on 27 February “following a significant price movement and in consultation with another competent authority".
Arguing against the effectiveness of short selling bans, Lewis added: “They say in war that the wrong action is usually better than inaction. Perhaps this is the case here.”
“Many European countries have previously imposed bans on short selling. Our own study of the short selling bans in Spain (which were finally lifted at the end of January) showed there was no real change in the volatility of the market for the duration of the ban. It also showed little correlation between the direction of share price movement and the subsequent imposition of a ban.”
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
