Shorting bans: What the four European regulators are prohibiting (and what they’re not)

August 15, 2011

By Peter Elstob

LONDON, Aug. 15 (Thomson Reuters Accelus) – The bans on short-selling the shares in a number of banks and insurance companies (and one stock exchange) that four member states imposed on Friday did not bring the single European rulebook any closer.

However, the European Commission will be hoping that the separate initiatives by the Belgian, French, Italian and Spanish market regulators, which came out of “coordinated discussions” during a conference call on Thursday evening involving all 27 members of the European Securities and Markets Authority, do not put it further away.

Some of the details of each national action are set out below, and they do indeed appear to be harmonised, at least to an extent. More detail, and also any updates to the lists of issuers included, should be sought on the respective regulators’ websites.


The Belgian Financial Services and Markets Authority (FSMA) set no expiry date for its ban, which covers all transactions — including over-the-counter (OTC) transactions — in relevant financial instruments issued by: Ageas; Dexia; KBC Group, and KBC Ancora; wherever these transactions are carried out. The Belgian regulator has banned market participants from creating or increasing new net economic short positions unless there is ‘appropriate coverage’, and the ban includes intraday positions. Derivatives may not be used to create a net short position in the specified financial institutions, but long positions in the banks’ shares may be hedged by derivatives.

The FSMA stressed that with its ban: “the notion of ‘uncovered transactions’ is extended so that coverage with borrowed shares can no longer be considered full coverage. For this reason, it is no longer merely ‘naked shorting’ that is prohibited, but also ‘covered shorting'”. The following exemptions apply to the Belgian ban:

— Market makers and liquidity providers as defined in the Euronext Rule Book.

— Block trade counterparties.

— Financial intermediaries deemed ‘usually active as market makers on OTC markets.

The FSMA provides further details, including definitions of ‘net economic position’ and ‘appropriate coverage’, in an FAQ page (in English) on its website.


The Autorité des marchés financiers (AMF) imposed its ban on August 11 and set an expiry date of 15 days later, but this is subject to possible extension. The ban applies to “any natural or legal person, French or foreign, regardless of whether trading takes place in France or in another country, or on a regulated market or not”. So far, the French ban applies to shares and other securities that give access to the capital of: April Group; Axa; BNP Paribas; CIC; CNP Assurances; Crédit Agricole; Euler Hermès; Natixis; Scor; and Société Générale. The AMF has banned market participants from creating or increasing net short positions (as defined in Article 4 of AMF Instruction 2010-08), including intraday positions, in these institutions.

Derivatives may only be used to hedge, create or extend a net long position. The regulator accepts that marginal net short positions may result from investors trading in index derivatives in order to hedge general market risk. However, trading in index derivatives for other purposes is prohibited unless the resulting net short positions are offset by long positions.

The following exemptions apply to the French ban:

— Financial intermediaries acting as market makers and liquidity providers if they are ‘operating under a contract with the relevant market undertaking or with the issuer concerned’.

— Intermediaries acting as block trade counterparties.

The AMF provides full details on its English-language FAQ page.


The Italian regulator, Commissione Nazionale per la Societá el Borsa (CONSOB) has set an expiry date of 15 days from 09.00 (CET) on August 12, when it imposed its ban. The prohibition on creating or increasing net short positions, including intraday positions, which applies to all legal entities, Italian and non-Italian, covers shares in the following 29 banks and insurance companies: Azimut Holding; Banca Carige; Banca Finnat; Banca Generali; Banca Ifis; Banca Intermobiliare; Banca Monte Paschi di Siena; Banca Popolare Emilia Romagna; Banca Popolare Etruria e Lazio; Banca Popolare Milano; Banca Popolare Sondrio; Banca Profilo; Banco di Desio e Brianza; Banco di Sardegna; Rsp Banco Popolare; Cattolica Assicurazioni; Credito Artigiano; Credito Emiliano; Credito Valtellinese; Fondiaria – Sai; Generali; Intesa Sanpaolo; Mediobanca; Mediolanum; Milano Assicurazioni; Ubi Banca; Unicredit; Unipol; Vittoria Assicurazioni.

Market makers and liquidity providers are exempt, but there is no explicit mention of block trade counterparties.


The Spanish ban expires 15 days after August 11, but the Comisión Nacional del Mercado de Valores (CNMV) says this “could be renewed if needed”. It applies to “any trade on equities or indices, including cash equities transactions, derivatives in regulated markets or OTC derivatives, that has an effect of creating a net short position or increase a previous one, even if on an intraday basis” in the stock of the following 16 institutions: Banca Cívica; Banco Bilbao Vizcaya Argentaria; Banco de Sabadell; Banco de Valencia; Banco Español de Crédito; Banco Pastor; Banco Popular Español; Banco Santander; Bankia; Bankinter; Caixabank; Caja de Ahorros del Mediterráneo; Grupo Catalana de Occidente; Mapfre; Bolsas y Mercados Españoles; Renta 4 Servicios de Inversion.

Positions arising from market making activities are exempt, and CNMV defines market makers in this context as: “investment firms that incur in a transitory (especially intraday) net short position either as a response or a hedge to a client order or as a result of quoting bid and ask prices on a continuous way as market members, with or without a public commitment with the issuer or the market”.

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete ( ions/regulatory-intelligence/compliance- complete/) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)

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