German financial regulator BaFin has banned naked short selling on a selected number of securities and instruments as part of efforts to curb speculative trading in the eurozone.
The ban, which is effective immediately and will run until 31 March 2011, includes eurozone sovereign bonds and credit default swaps as well as a group of 10 German financial stocks.
Naked short selling is the practice of selling a stock short without initially borrowing the shares or ensuring that the shares can be borrowed.
The stocks included in the ban comprise Aareal Bank, Allianz, Commerzbank, Deutsche Bank, Deutsche Börse, Deutsche Postbank, Generali Deutschland Holding, Hannover Rückversicherung, MLP and Münchener Rückversicherungs-Gesellschaft.
BaFin said the measures were implemented because of “extraordinary volatility” in debt securities from the eurozone, and the widening of spreads in credit default swaps related to credit default risks on several European countries.
“Massive short selling of the debt securities concerned and the conclusion of uncovered CDS on credit default risks of euro zone countries were resulting in further excessive price movements which could result in further serious disadvantages for the financial market and could jeopardise the stability of the financial system as a whole,” read a statement from BaFin.
In March, BaFin introduced a new short position disclosure regime for financial stocks following recommendations from the Committee of European Securities Regulators (CESR).
Until 31 January 2011, financial institutions, except those classified as market
makers, in Germany are required to disclose net short positions to BaFin by the end of the next trading day if they reach, exceed or fall below 0.2% of the outstanding share capital of the 10 financial companies included in today’s ban. If short positions in the selected financial stocks reach, exceed of fall 0.5%, BaFin will make the positions public but without disclosing the identity of the holder.