Bloomberg reports a surprise move from Germany:
“Germany will temporarily ban naked short selling and naked credit-default swaps of euro-area government bonds at midnight after politicians blamed the practice for exacerbating the European debt crisis.
The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, German financial regulator BaFin said today in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, the regulator said.
The move came as Chancellor Angela Merkel’s coalition seeks to build momentum on financial-market regulation with lower- house lawmakers due to begin debating a bill tomorrow authorizing Germany’s contribution to a $1 trillion bailout plan to backstop the euro. U.S. stocks fell and the euro dropped to $1.2231, the lowest level since April 18, 2006, after the announcement.
“You cannot imagine what broke lose here after BaFin’s announcement,” Johan Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt, said in an interview. “This will lead to an uproar in the markets tomorrow. Short-sellers will now, even tonight, try to close their positions at markets where they can still do so — if they find any possibilities left at all now.”
My Comment:
Well, this is going to cause some havoc in the markets tomorrow. I’m not sure why the sudden (midnight) deadline was necessary.
At Market Ticker, Karl Denninger is a bit more optimistic than I am.
Naked short selling is fraudulent, no doubt of it. But I fail to see why a ban on naked short-selling should only apply to the shares of banks and insurers, not other industries. This was the same problem with the SEC’s 2008 ban, which amounted to a protection of the financial sector at the expense of other sectors.
Here are the protected banks:
Allianz SE, Deutsche Bank AG, Commerzbank AG, Deutsche Boerse AG, Deutsche Postbank AG, Muenchener Rueckversicherungs AG, Hannover Rueckversicherungs AG, Generali Deutschland Holding AG, MLP AG and Aareal Bank AG are covered by the short-selling ban.
Meanwhile, the market is naturally fleeing the euro, which fell to a 4 year low against the dollar. Traders are probably wondering what else is in store for Euro bonds.