France, Spain, Italy and Belgium’s bans on short-selling may fail to reverse the fall in financial stocks and instead may concentrate bets against banks elsewhere in Europe, according to lawyers, investors and academics.
British financial stocks dropped 41 per cent in the four months after regulators imposed a ban on short selling following the collapse of Lehman Brothers Holdings Inc. in September 2008. The benchmark FTSE 100 index fell 15 per cent in the period. When the Securities and Exchange Commission prohibited short-sales for three weeks in September 2008 a Bloomberg Index tracking the 880 US stocks affected fell 26 per cent, outpacing the Standard & Poor’s 500 Index’s 22 per cent decline.
European regulators are divided over how to respond after a rout that sent the region’s bank stocks to their lowest in almost two and a half years this week. Germany and the Netherlands have said they don’t plan further restrictions on short sales, while British regulators said they don’t plan to limit the practice.
“In contrast to the regulators’ hopes, the overall evidence indicates that short-selling bans at best left stock prices unaffected and at worst may have contributed to their decline,” said Alessandro Beber, a professor at Cass Business School in London.
