Industry hits back at short-selling ban

fairy_dust_410Industry groups are attacking the decision of regulators in Belgium, France, Italy and Spain to impose or extend a ban on short selling European bank stocks.

The regulators believe that short selling is accelerating falling stock prices on European banks, but the Investment Management Association (IMA) claims data from 2008, when the UK and other authorities imposed a similar ban, shows the move is unlikely to stabilise prices.

“In the run up to the ban financial stocks were falling at much the same rate as the market as a whole,” said IMA chief executive Richard Saunders. “But once the ban was in place, the fall in financials accelerated, while the rest of market steadied.”

He added: “So whatever drove down the price of financial stocks in 2008 it doesn’t look like it was short selling.”

The Edhec-Risk Institute is even more strident. “These hasty decisions are not only devoid of theoretical basis, but also fly in the face of empirical evidence,” it said.

The institute “denounces the decisions to impose or extend short-selling bans as a political smokescreen that is likely to be counterproductive, both directly by disrupting market functioning and degrading market quality at a most testing time, and indirectly by further fuelling defiance vis-à-vis sovereign states and the continued inability of their political institutions to address the causes of the current crisis”.

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