Regulatory authorities in France have decided to lengthen a one-day ban on short selling to 30 days with immediate effect, as the coronavirus pandemic continues to hit markets globally.
Market participants are now banned from creating or increasing all short net positions on shares admitted to trading on venues in France, the Autorité des Marchés Financiers (AMF) confirmed, extending a one-day ban that was imposed just yesterday by multiple regulators across Europe.
The AMF stated that the decision was made “in the light of the outbreak of coronavirus and its consequences on the economy and financial market in France,” and “given that the current exceptional circumstances represent a serious threat to market confidence”.
France, Italy and the UK have made moves to curb short selling to combat the market sell-off, with one-day bans. Spain’s Comisión Nacional del Mercado de Valores decided to ban short selling activity on Spanish shares for up to one month from yesterday. The ban can be extended if needed, but may also be lifted before the one-month deadline.
The European Securities and Markets Authority (ESMA) has also demanded more information from hedge funds betting against stocks, by lowering the threshold at which investors must report to national regulators on short selling positions. ESMA said the move was made under “exceptional circumstances” linked to the ongoing coronavirus pandemic.
Short sellers borrow shares and immediately sell them, betting the price will fall before they buy back the shares and return them to the lender, pocketing the margin. In 2008 during the global financial crisis, regulators globally made similar moves to ban short selling of stocks, due to fears the trading strategy would exacerbate the steep drop in stock prices.