European regulators have removed temporary bans on short selling that have been in place since the height of the pandemic-induced selloff in March.

Authorities in Austria, Belgium, France, Greece, Italy and Spain allowed their bans to expire at midnight on 18 May.

Several of the regulators claimed the measures had been a success. The AMF, France’s financial watchdog, said its volatility measure had fallen by more than half since the ban was instigated.

Helmut Ettl and Eduard Müller, executive directors at Austria’s regulator FMA, said in a statement that the ban was “essential, appropriate and effective”. They claimed it had helped to “absorb the irrational overreactions of the markets” during the past few weeks, while also maintaining investor confidence.

Belgium’s FSMA said the decision to lift the measures had been made by the regulators in conjunction with the European Securities and Markets Authority (ESMA) following a fall in market volatility and some governments taking steps to relax lockdown measures.

ESMA logo

ESMA said it would continue to “monitor developments in financial markets”, adding that it was “prepared to use its powers to ensure the orderly functioning of EU markets, financial stability and investor protection”.

The World Federation of Exchanges (WFE) welcomed the lifting of the bans, but reiterated its belief that limiting short selling had a negative impact on markets.

Nandini Sukumar, CEO of the WFE, said such a measure “interferes with price formation, thereby increasing uncertainty”.

“That can only artificially amplify volatility and probability of default, the opposite effect to that claimed, and hampers the ability of markets to serve the real economy,” she added.

“We welcome the decision to allow regulated markets, that have demonstrated they are resilient and capable of operating as they should in a crisis, to now resume normal operation. We look forward to supporting Europe’s measures to rebuild the economy.”

Since the group of regulators banned short selling on 16 March, stock markets have rebounded from low points. Between 16 March and 19 May, the Stoxx Europe 600 index was up by almost 19% in sterling terms.

Separately, a group of US legal experts have written to the Securities and Exchange Commission (SEC) to push for greater disclosures around short positions in US markets.

They called for the US regulator to require short sellers to update their positions “promptly” when previously published data “no longer reflects current holdings or trading intention”. They also asked the SEC to “clarify” guidelines around “scalping”, whereby short positions are closed quickly after disclosure without the short seller specifying its intent to do so.

Joshua Mitts, associate professor of law at Columbia University and a specialist in the legal aspects of short selling, wrote the letter. It was co-signed by 11 academics and lawyers including Edward Greene, a former general counsel at the SEC.

Last Updated: 20 May 2020
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