Short-selling bans achieve nothing useful: Exchanges body

Tuesday, 31 March 2020 00:50 - - {{hitsCtrl.values.hits}}

LONDON (Reuters): Banning short-selling of shares gives the impression of responding decisively to events without achieving any useful result, the World Federation of Exchanges (WFE) said on Monday.

In an unusually blunt statement, the global umbrella group for exchanges and clearing houses said bourses already have safeguards like circuit breakers to slow markets during bouts of extreme volatility.

Several European Union countries, including Spain, Italy, France and Belgium have banned traders borrowing a company stock with a view to selling it, hoping to buy it back later at a lower price and pocket the difference, a practice that critics say can exacerbate market moves amid panic selling.

“Banning short-selling interferes with price formation, thereby increasing uncertainty,” WFE Chief Executive Nandini Sukumar said in a statement.

“It is not – and never has been – true that bans have any other, positive effect on market activity or price levels.”

Britain has refused to ban short-selling, saying there is no evidence that it was a driver of market routs. The United States has not introduced such a curb, but traders say Germany has been under pressure to introduce a ban and has so far resisted.

“Falling prices indicate that companies are expected to be less profitable in the future,” WFE said. “But even in a declining market, short-selling is only a small part of market activity, notably compared with sales of existing long positions.”

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