Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Sign up for our Corporate Crime & Compliance UK newsletter
You must correct or enter the following before you can sign up:
Thank You!
Law360, London (April 16, 2020, 12:03 PM BST ) Financial watchdogs in five European Union countries have renewed bans on short-selling shares to limit the impact of the coronavirus pandemic on the region's stock markets.
France is among five EU countries to renew bans on short-selling shares, saying it did so because of "the spread of the coronavirus epidemic." (AP)
The one-month bans were introduced in March and were set to expire in the next few days. The regulators cited plunging stock prices as markets reacted to the coronavirus scare and its implications for the economy. The new restrictions will be in place until May 18 and could be extended further, the authority said.
"ESMA considers that the proposed measures are justified by current adverse events or developments, which constitute a serious threat to market confidence and financial stability, and that they are appropriate and proportionate to address the existing threat to market confidence in those five markets," the regulator added.
Traders engage in short-selling when they borrow shares in a company and sell them, intending to buy them back later at a reduced price to profit from the difference.
The Austrian financial regulator said Wednesday that a temporary ban on the practice "is essential due to the continuing and severe prevailing market uncertainty in relation to the COVID-19 virus." Speculative short-selling can cause market turbulence and lead to significant risks, the watchdog added.
Meanwhile France's markets regulator said it extended the ban because of "the spread of the coronavirus epidemic and the persistence of its consequences on the economy and the financial markets in France."
Italy, which has suffered one of the worse outbreaks, will also continue a ban on short-selling an until mid-June.
Other regulators across Europe, notably the U.K.'s Financial Conduct Authority, have not implemented restrictions, saying there was little evidence the practice was behind recent market falls.
The FCA said short selling was a useful tool in some investment and risk management strategies. It , allowing the ability to take long and short positions, which benefit "ordinary investors including the pension funds for employees of companies and local government."
ESMA demanded tighter standards in March on reporting of short positions during the Covid-19 pandemic. Traders must inform their national regulator if their short position reaches or exceeds 0.1% of the issued share capital of the company with immediate effect from Monday, ESMA said. The threshold was previously 0.2%.
--Additional reporting by Najiyya Budaly. Editing by Ed Harris.
For a reprint of this article, please contact reprints@law360.com.
