Regulators in France, Italy, Spain and Belgium.

Imposed Temporary Bans on Short-Selling of Financial Shares

[SevenCubed]

Here's a bland generic article in this morning 's Toronto Star newspaper that's worth 2 minutes to read. It reinforces something I've mentioned here on a few occasions concerning short-selling of shares on stock markets.

But investors felt more positive about the financial sector after a short-selling ban on financial shares in four eurozone countries helped stabilize French banks.

Regulators in France, Italy, Spain and Belgium imposed temporary bans on short-selling of financial shares late Thursday, following sharp selloffs and temporary gains in French bank shares in particular that were blamed on false rumours. [thestar.com...]

We, as an Internet community, are often force-fed hype about IPO and "share holder" value and so it's very important to understand these types of activities (short-selling) is normally undesirable but especially so in uncertain economic times.

What the regulators are acknowledging by imposing this "temporary ban" is that first and foremost it helps prevent rapid irrational depreciation of share value but even more importantly notice that it does not affect how the markets function as a whole. If they were to permanently disallow this practice it would be business as usual. If fact it would assure more stability in financial sectors. In effect they are saying to speculators "alright guys, lets get this economic and political situation under control and then we can go back to the games people play".

Just food for thought.

[graeme_p]

No, its a case of shooting the messenger.

Who decides what is "irrational"? The government that is trying to pretend that there is no problem, or people who are willing to put their money where their mouth is?

No one "feel more positive" because of a ban on short selling: it reduces the supply available for sale, so it stabilises the price.

[SevenCubed]

reduces the supply available for sale

Not at all. The shares are still there, the number of outstanding shares hasn't diminished. It just takes away the opportunity for speculators to sell shares they don't actually own -- borrowed from brokers who have clients in debt to them through margin investments from other sources.

[SevenCubed]

By the way to add to that above -- the "irrational" selling was due to "false rumours" as stated in the article. Isn't that irrational enough?