Editor’s note: This article was first published in August 2011 as a news item. The ban (initially 15 days, extendable), the market moves and the list of protected Spanish institutions are from that week. Banca Cívica and Bankia no longer exist as independent banks.
Markets and bankers had been waiting for this measure, approved by European regulators: a ban on short positions, which is supposed to stop people from betting against a stock to make a profit. In principle, the ban will last at least 15 days and may be extended. The first country to adopt it was Greece, and Spain, France, Italy and Belgium have since joined in. In Spain, the ban came into force on Thursday, 11 August.
Applause
The financial sector has applauded the measure: “A very wise and timely decision to try to correct a situation that has no objective justification and which, if prolonged, could have serious repercussions for financial stability.”
Yesterday, Spain’s Finance Ministry asked for the measure to be extended to the public debt market and to companies in strategic sectors such as energy, transport and telecoms.
For now, the measure is considered to have worked: for the second day in a row the IBEX rose, posting its second-best session of the year with a gain of 4.82%. Paris closed up 4.02%, Germany’s DAX 30 gained 3.45% and Wall Street celebrated a 1% rise.
Looking at these numbers, we could say the measure is indeed having a positive effect, although… how long will it last?
Doubts
As with any measure, some people are in favor and others don’t believe that “stopping short selling” is the solution to the problems.
Jorge Lage, an analyst at CM Markets, thinks it’s a patch: in his view, the measure won’t stop the market from falling and will only prevent attacks on specific stocks.
David Navarro, a fund manager at Inversis Banco, points out that the US adopted this same measure in 2008 and stocks kept falling, so we’ll have to wait before being optimistic about the outcome.
“It’s as if you break your leg and instead of putting it in a cast they prescribe you ibuprofen. It will ease the pain, but when the effect wears off, your leg will still be broken.”
“What’s needed are real measures that restore confidence.”
Short selling: what it is and whom the ban protects
Short selling means selling shares you don’t own (you “borrow” them) with the intention of buying them back later at a lower price to return them to their owner, pocketing the difference between the two amounts as profit. The measure applies to net short sales, which seek only a capital gain.
The ban protects the shares of 16 Spanish financial institutions: Banca Cívica, BBVA, Santander, Bankia, Mapfre, Bolsas y Mercados Españoles, Renta 4…
The measure is not retroactive, but it also applies to trades in Spanish companies’ shares carried out outside Spain. Only time will tell how effective it turns out to be.
See also: An analysis of three big stocks: Apple, Google and Inditex
Further reading
Featured image: Benjamín Núñez González, CC BY-SA 4.0, via Wikimedia Commons.
