Friday, August 12, 2011

France, Italy, Spain, and Belgium Ban Short Selling in Banking Stocks, While U.S. Retail Sales Show Nice Growth

Looks like the rumors yesterday of some bans on short selling were partially true as four countries have decided to stop the practice temporarily, focused mostly within their banking sectors.

  • The European Securities and Markets Authority, which is the European version of the Securities and Exchange Commission, said France, Italy, Spain and Belgium have all "decided to impose or extend existing short-selling bans in their respective countries."
  • "They have done so either to restrict the benefits that can be achieved from spreading false rumors or to achieve a regulatory level playing field, given the close interlinkage between some EU markets," the authority said in a statement.
  • France, Italy, Spain and Belgium imposed bans, which varied according to country, while Britain, the Netherlands and Austria said they saw no need for action. Germany said it would instead push for a Europe-wide one on so-called naked short-selling.
  • France banned short selling on 11 financial stocks for 15 days, Spain said it would protect 16 stocks for 15 days, Belgium banned short selling of four financial stocks for an indefinite period and Italy said its ban covered 29 companies in the banking and insurance sector.
  • Market players said the ban did not tackle the root causes of investors' concerns -- joined-up, long-term fiscal policy in the euro zone - and pointed out that nervous mutual funds were currently behind the sell-off.
  • The European assault mirrors one by the U.S. Securities and Exchange Commission on September 19, 2008, four days after Lehman Brothers collapsed, to temporarily ban short selling in 799 banks and other financial institutions.  The U.S. move was of questionable value, according to several academic studies. While share borrowing fell during the three-week ban, financial stocks continued to plummet.

This was not very effective (over time) when done in the U.S. in 2008, but I this the situation was of a different nature at the time versus what we see in Europe.  I think a lot more rides on next week's meeting bewteen Sarkozy and Merkel.


Meanwhile some positive news in the U.S. economy in the retail sector, which looks like it will push the S&P 500 over the top end of its recent range of S&P 1175.  In line is good enough in this environment.
  • Sales climbed 0.5%, in line with analyst forecasts and following an upwardly revised 0.3% gain in June.

Of course this part is amusing, when retail sales go up due to higher gasoline prices.  If true, then the opposite should happen when August is reported.
  • Excluding autos, sales increased 0.5%, well above forecasts for a 0.2% gain. The figures were bolstered by a 1.6% jump in gasoline station sales, in part reflecting the higher cost of fuel.

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