EU Watchdogs Scrap Crisis-Period Short-Selling Ban

By Joanne Faulkner
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Law360, London (May 18, 2020, 11:53 AM BST) -- Six European financial regulators on Monday scrapped a temporary ban on short-selling shares introduced in March during extreme market volatility after the outbreak of COVID-19.

Austria, Belgium, France, Greece and Spain will not renew short-selling bans that were due to expire on Monday night, the European Securities and Markets Authority said. Italy, whose ban was due to expire on June 18, is lifting its ban early to align itself with the other five European Union states, ESMA said.

The watchdogs sought to rein in the slump on stock markets in March through emergency curbs on attempts to profit from falls in stock prices. EU regulations allow such bans on short-selling where necessary to prevent threats to financial stability or to confidence in the market.

Lifting the ban means that investors will be able to place short bets on all shares in these markets without restriction. An investor uses the technique to borrow shares and sell them on in the expectation he can rebuy them at a lower price, pocketing the difference when returning them to the lender.

France's stock-market regulator, the Autorité des Marchés Financiers, said it has seen a "progressive normalization" in trading since the ban was introduced.

"Markets have partly reduced their losses, trading volumes and volatility have returned to levels that are still high compared to mid-February. However this reflects market participants' uncertainties in the current context," the AMF said in a statement.

The Financial Conduct Authority in Britain and Germany's watchdog were among the regulators that did not introduce restrictions. The FCA said there was no evidence that short-selling was behind the sharp market falls seen in March and that net short-selling activity was low.

The patchwork decision by some regulators to halt short-selling has frustrated industry groups, which argue that the practice fuels uncertainty in markets.

The World Federation of Exchanges — which represents major exchanges including the London Stock Exchange, Deutsche Boerse and NASDAQ — has complained that short-selling bans prevent participants trading as effectively as possibly, making price information less accurate.

--Editing by Ed Harris.

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