EU Regulators Extend Short Selling Bans To Slow Slump

Law360, London (March 17, 2020, 2:39 PM GMT) -- European market regulators on Tuesday extended temporary short selling bans to brake plunging stock prices as markets reacted to the coronavirus scare and its implications for the economy.

The Financial Conduct Authority said Tuesday it would put a ban on the practice of placing bets that a share price will fall for 37 Belgian and Italian stocks following similar moves by local regulators. The measure lasts all day Tuesday and covers all U.K. trading venues.

The prohibition affects stocks including banks BNP Paribas, Societe Generale, insurer AXA and car maker Renault.

This is the second time in four trading days that the FCA has imposed one-day bans for shorting stocks. On Friday the FCA took action to protect the value of more than 150 Spanish and Italian companies listed on the London Stock Exchange including luxury car maker Ferrari and the Juventus football club.

The FCA’s decision mirrors the action of other European regulators. Watchdogs in Belgium, France and Italy also imposed short selling in some stocks for traders on Tuesday.  

Spain’s securities regulator late Monday banned short selling for a month.

“The decision ... has been taken due to the extreme volatility taking hold of European securities markets, including those based in Spain, their performance in the context of the situation arisen as a result of the virus COVID-19 and the risk of disorderly trading taking place in the following weeks,” Comision Nacional del Mercado de Valores said.

The measures will be in place on Spanish trading venues until at least April 17 and  can be extended for additional periods not exceeding three months.

The decision comes after the country — which has been one of the hardest hit in by the novel coronavirus in Europe so far — declared a state of emergency at the weekend and imposed a 15-day national lockdown.

On Monday the European Securities and Markets Authority told traders Monday that they must hand over additional information on their short-selling bets in a bid to prevent the price of shares tumbling further during the coronavirus outbreak.

ESMA said it will temporarily lower the threshold for reporting short positions so that it can monitor investors who are gambling on the price of stocks falling during the pandemic. This will allow the regulator to intervene if the shares slump to dangerously low levels.

"ESMA considers that lowering the reporting threshold is a precautionary action that, under the exceptional circumstances linked to the ongoing COVID-19 pandemic, is essential for authorities to monitor developments in markets,” the regulator said in a statement on Monday.

Traders must inform their national regulator if their short position reaches or exceeds 0.1% of the issued share capital of the company with immediate effect from Monday, ESMA said. The threshold was previously 0.2%.

The European Union authority said that the measure is appropriate and proportionate to address the outbreak’s threat to financial markets.

--Additional reporting by Najiyya Budaly. Editing by Rebecca Flanagan.

For a reprint of this article, please contact reprints@law360.com.

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