France, Belgium, Spain and Italy, all under intense pressure from the financial markets, have banned the speculative practice of short-selling stocks to combat “false rumours” that have destabilised them.
But Britain has no plans to follow suit, a spokesman for the Financial Services Authority said yesterday.
“We have no current plans to introduce a short-selling ban in the UK,” the spokesman said, adding that the existing system was transparent enough.
“We have an existing short-selling disclosure regime around financial stocks in place and we continue to monitor the activity in our markets accordingly.”
Short-selling is the practice of investors selling stocks they do not yet own at current prices in the expectation they will drop before buying them later and making a profit on the difference.
The move echoes steps taken at the height of the global financial crisis sparked by the collapse of US investment bank Lehman Brothers in 2008 and comes against a background of unprecedented market turmoil as Europe tries to tame a deepening debt crisis.
Supporters claim the practice allows investors a hedge against risk but critics say it only adds to the downward pressure in falling markets and serves no real purpose beyond speculative trading for short-term profit.
The European Securities and Markets Authority said in a statement on Thursday that the four countries “will shortly announce new bans on short-selling or on short positions”.
This aims to “restrict the benefits that can be achieved from spreading false rumours or to achieve a regulatory level playing field, given the close inter-linkage between some EU markets.”
In France the chairman of the Financial Markets Authority, Jean-Pierre Jouyet, told AFP it had decided to ban short-selling of 11 financial sector companies for two weeks.
Stock markets continued volatile in trade yesterday but in narrower ranges after wild swings this week as France, the eurozone’s second largest economy, was dragged into the debt quagmire alongside Italy and Spain after Greece, Ireland and Portugal had to be bailed out.
The ESMA said “European financial markets have been very volatile over recent weeks. The developments have raised concerns for securities markets regulators across the European Union,” singling out misleading rumours as cause for concern.
The banks, and French banking giant Societe Generale in particular, have been among the hardest hit by concerns over their exposure to Greek debt, with many lenders reporting increased provisions on their loans to Athens.
The provisions have gone down badly in fearful markets where speculation about the financial health of the banks has been rife despite the banks and the authorities’ efforts to reassure investors that there is no underlying problem. “While short-selling can be a valid trading strategy, when used in combination with spreading false market rumours this is clearly abusive,” the EMSA said.
Mr Jouyet said the decision had been taken jointly “because, in the different European countries, we have to face up rumours which are unfounded and which interfere with the smooth running of the markets”.