The European Securities and Markets Authority (ESMA) has scrapped bans on short-selling which were introduced during extreme volatility in March when national lockdowns were rolled out across the European Union to stem the Covid-19 pandemic.
The Austrian, Belgian, Greek, French, Italian and Spanish securities regulators have jointly decided to lift the restrictions. Italy, whose ban was set to expire on June 18, decided to align itself with the other five EU states. Other countries including Germany and the U.K. didn’t impose short selling sanctions on equities.
France’s stock-market regulator, the Autorité des Marchés Financiers, and Italy’s Commissione Nazionale per le Società e la Borsa said they had viewed “progressive normalisation” in markets.
“Markets have partly reduced their losses, trading volumes and volatility have returned to levels that are still high compared to mid-February, however this reflects market participants’ uncertainties in the current context,” according to the AMF in a statement.
Last week trade groups called on the AMF and finance ministry to end the ban. They included the Alternative Investment Management Association, which has 2,000 members in over 60 countries; the FIA European Principal Traders Association; the Managed Funds Association, whose members manage over a third of global hedge fund assets; and the World Federation of Exchanges, whose members include the major trading platforms around the world.
In a letter, they said, “Market data on securities subject to the restrictions in place in Austria, Belgium, France, Greece, Italy and Spain are available and show that those securities are not collectively performing better than those in comparable jurisdictions that are not subject to restrictions; shares are more volatile than they were prior to the bans; and markets exhibit wider spreads since restrictions were put in place.”
They added that, “Over the longer term, the bans risk undermining confidence in key European financial markets and hampering the goal of a Capital Markets Union, something that will be vital to European recovery from the profound economic shock caused by COVID-19.”
Volume traded in restricted shares made up 30% of the total volume traded in Europe. After the bans, this value dropped to 23%, according to the trade groups.
Analysts at Barclays said the move to lift the ban shouldn’t reintroduce volatility. They looked at the short-selling bans during the global financial crisis and found that European stocks rallied after their removal. “It seems that as long as fundamentals improve, short selling should not be an impediment to further recovery in equity markets,” they added.
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