While national regulators in France, Spain, Italy and Belgium have moved to introduce a temporary ban on short selling to calm volatile markets, their UK and US counterparts showed no inclination to follow suit.
“We have an existing short selling disclosure regime around financial stocks in place and we continue to monitor the activity in our markets accordingly,” said the FSA in a statement on Friday. “We have no current plans to introduce a short-selling ban in the UK.”
Market reaction to the move by European regulators was mixed.
“This will only make things worse,” said Adrian Fitzpatrick, head of investment dealing at Aegon Asset Management, “It is not helpful; it just adds complications for trading firms trying to deal with volatile market conditions. Short selling restrictions do not work.” He pointed to the ban introduced in the US in September 2008, which had a negative effect on trading volumes with a 48% decrease in one month.
Effective for 15 days from 12 August 2011, the ban applies to any transaction in shares or indices, including cash transactions, derivatives on exchanges or OTC derivatives, which involves creating a net short position or increasing an existing short position, even intraday.
Italian regulator Consob specifically cited the “extraordinary market conditions” of August, stating that the existing system for reporting of net short positions was no longer sufficient. The Spanish regulator CNMV noted that the ban may be extended if necessary.
In all cases, the ban does not apply to financial intermediaries acting as market makers or liquidity providers when they are operating under a contract with markets or issuers, or when acting as counterparty for block trades in equities.
Pan-European regulator the European Securities and Markets Authority (ESMA) released a statement acknowledging the volatility of the markets in recent weeks as a major contributing factor to the ban, and warning against market abuse. ESMA worked to help coordinate the ban in the four countries.
“While short-selling can be a valid trading strategy, when used in combination with spreading false market rumours this is clearly abusive,” said the ESMA document.
restrictions were imposed in Greece and Turkey earlier this month.