Spain extends short-selling ban to protect bank stocks
MADRID (Reuters) - Spain's stock market extended a ban on short-selling Spanish securities for a week and said it would seek European approval for a further three-month ban in order to discourage investors from trying to profit from an economic crisis.
Short-selling involves investors borrowing shares to sell on the market and later buying them back at a lower price to make a profit.
Spanish banking stocks have been heavily shorted as investors bet that stock prices would fall further during the country's worst recession in half a century.
The extension of the ban will be welcomed by Spanish banks, particularly Popular (POP.MC) which is expected to launch its 2.5 billion euro ($3.3 billion) capital increase in coming days or weeks. The expectation of falling prices could put off potential investors.
The restructuring of the banking sector, which is waiting the first funds from a 100 billion euro credit line agreed with Europe in June, has created uncertainty which could affect the stability of the financial system, the regulator said.
On July 23, the Spanish stock market regulator banned short-selling on all securities for three months. Italy also banned short-selling on banking and insurance stocks on July 27 and lifted its ban on September 14.
The Spanish ban will initially be extended from October 24 until market close on October 31, and affects all transactions in shares, including derivatives.
The ban does not apply to transactions by entities that perform market-making functions.
The Spanish stock market regulator said in a statement it had applied to the European markets watchdog to extend the ban for a further three months, effective from November 1.
'Naked' short-selling, where traders do not even borrow the stocks before selling them, is not allowed under Spanish or Italian rules.
(Reporting by Jesús Aguado; Editing by Sonya Dowsett and Mark Potter)
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