Coronavirus short-selling ban: Trading curbs after European market meltdown
The Financial Conduct Authority temporarily bans the short-selling of stocks in scores of Spanish and Italian-listed companies.
Friday 13 March 2020 13:51, UK
Britain's markets watchdog has imposed curbs on UK traders as the worsening coronavirus outbreak saw European stock exchanges suffer record losses.
The Financial Conduct Authority has temporarily banned the short-selling of stocks in scores of Spanish and Italian-listed companies, in response to the market meltdown, driven by the spread of COVID-19 - the disease caused by the virus.
The step was taken after both Spain and Italy moved to crackdown on the practice, where traders bet a share price will fall.
Madrid's benchmark index fell by 14% on Thursday, while the Milan stock market plunged 17% as alarm grew over the spread of COVID-19 and measures unveiled by the European Central Bank failed to calm jitters.
Companies to which the ban applies include Airbus, Fiat Chrysler, Ferrari, and Juventus and Lazio football clubs.
However, Germany said it was not planning a ban.
Short-sellers borrow shares and immediately sell them, betting the price will drop before they buy back the shares and return them, pocketing the difference.
However, when the number of investors seeking to shed stocks outstrips those wanting to buy, as can happen amid panic-selling over coronavirus, this can further drive down the price of shares.
Many countries outlawed the technique during and in the immediate aftermath of the 2008 financial crisis.
But while such bans can soften the impact of a financial shock, market experts say they only work for a limited time.
Neil Wilson, chief market analyst for Markets.com, said: "When trouble strikes, policymakers like to fall back on old playbooks, like banning short selling of shares."
He added: "We see this kind of action occasionally when markets spasm and the recent rout fits the bill. US regulators banned short selling of bank stocks during the great financial crisis of 2008-09, while similar steps were taken during the height of the 2010-11 European sovereign debt crisis."