Tags: Germany | Wider | Naked | Short | Selling | Ban

Germany May Expand Naked Short-Selling Ban

Tuesday, 25 May 2010 01:16 PM

 

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The German government is considering widening curbs on speculative trading practices under draft legislation that would extend a ban on so-called naked short selling of some securities to include all stocks.

Germany's market regulator surprised markets last week with an immediate ban on naked short-selling of eurozone government debt and shares of major financial companies. It applies through March 31.

A Finance Ministry draft obtained Tuesday by The AP envisions a ban on naked short-selling of "shares, including derivates related to them." It also calls for the introduction of "a transparency system for short-selling positions."

It has been sent to financial industry organizations for discussion.

Short-selling is a way of betting a financial asset will go down by borrowing securities and selling them in hopes of buying them cheaper later. The trader profits on the difference in price; naked short-selling involves selling shares without going through the first step of borrowing them.

The initial ban rattled financial markets, with analysts saying unilateral action by one government suggested lack of unity in combatting the market turmoil from Europe's government debt crisis. Some market watchers say most such trading is conducted outside Germany in any case.

Germany has stepped up longstanding calls for tighter regulation of the financial sector as Berlin and its European Union partners deal with the eurozone debt crisis -- an effort that has entailed pushing through large and unpopular rescue packages.

A government official, speaking of condition of anonymity because he wasn't authorized to speak on the record to media, said that the legislation already had been planned for some time. The Cabinet is expected to consider it next month, but it wasn't immediately clear when it might go to lawmakers.

The draft says that the financial crisis "has shaken confidence in financial markets" and made clear the need for "substantial improvements" in regulatory law.

The crisis has reached a "new dimension" recently with the widening of turbulence to the market for European government bonds, it said, adding that a "ban on certain potentially crisis-strengthening transactions and an improved transparency" are aimed at calming "these negative market developments."

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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