Germany wants short-selling ban

THE German government, which applied curbs on some types of short-selling last year, said it favours a far-reaching ban across Europe of so-called naked short-selling of shares, government bonds and credit default swaps.

“Only through this can destructive speculation be countered in a convincing way,” the finance ministry said.

Germany’s DSGV savings banks association backed the government’s plan, saying a temporary ban on short-selling for some bonds and stocks to help calm the market is “sensible”.

France, Spain, Italy and Belgium has banned short-selling to stabilise markets, with the European Securities and Markets Authority saying the practice can be “abusive” in driving stocks down when used in combination with “spreading false market rumours”.

While the German finance ministry said it supports the move, the chief executive of the London-based Alternative Investment Management Association said: “We regret these actions.”

Andrew Baker added: “Short-selling is a legitimate market practice which helps capital markets function effectively.”

Germany has been leading attempts to outlaw some financial market instruments, applying a temporary unilateral ban in May 2010 as yields on Greek bonds soared. A law banning certain naked short-selling was enacted later that year.

Extending the prohibition is a “central German concern” even in the face of British opposition, Michael Meister, the ruling Christian Democrats’ senior finance and economy spokesman, said in December.

Germany’s Bafin markets regulator said it hasn’t seen any signs of abuse to warrant taking further curbs against short-selling

The BDB Association of German Banks said it opposes a “blanket ban” on short-selling, which serves an “important” function for price-building.

Meanwhile, the EU, ECB and IMF yesterday gave the green light to a second tranche of debt aid worth €11.5 billion to Portugal.

French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet on Tuesday after concerns the sovereign debt crisis will spread to the region’s larger economies rattled the French stock market.

France’s gross domestic product was unchanged from the first quarter, when it rose 0.9%.

Figures also showed the Greek economy suffered a steep 6.9% year-on-year contraction in the second quarter.

Industrial production in the eurozone unexpectedly fell in June, adding to signs the economy is losing momentum as governments struggle to contain the debt crisis.

Short-selling explained

THIS is a method where traders on the financial markets try to profit from falling share prices. It usually involves borrowing a security, such as a share or bond, and then selling it in the hope its price will fall.

The security is then bought back at a lower price and returned to its original owner and the seller pockets the difference.