Spain extends short-selling ban for three months

MADRID Thu Nov 1, 2012 10:38am GMT

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MADRID (Reuters) - Spain's stock market regulator is to extend a ban on the short-selling of securities for three months to January 31 to discourage investors from trying to profit from the country's economic crisis.

The crisis has knocked more than 8 percent off Spain's blue-chip IBEX 35 index .IBEX over the past year. Big losses earlier in the year led Spain, along with other European countries, to prohibit short-selling in July.

Short-selling is when investors borrow shares, sell them and later buy the shares back at a lower price, turning a profit.

Spanish shares, particularly banks, have taken a hit as investor confidence in the country has evaporated. Spain is in its second recession in three years and is seen inching towards asking for international aid.

Under a new European Union law to coordinate short-selling curbs across the bloc's markets that came into effect on Thursday, the European Securities and Markets Authority (ESMA) said it backed the Spanish move.

The new law requires ESMA to say if national curbs are justified, appropriate and of the right duration.

ESMA called the ban "appropriate and proportionate" given "developments which constitute a serious threat to financial stability and to market confidence in Spain".

If ESMA had disapproved, Spain would have a short period to justify itself publicly, and ESMA would ultimately have a "nuclear" option of scrapping the curbs.

ESMA could also extend curbs beyond Spain to other countries if it felt this was necessary to ensure orderly markets.


The extension of the ban is good news for Spain's banks, a popular choice for short-selling as investors bet that the share prices of troubled lenders will fall farther. Spain negotiated a bank bailout of up to 100 billion euros ($129.5 billion) in June.

"The bank restructuring process is still not completed, leading to uncertainty about the sector, which could affect financial stability. In this context, not banning short-selling could add to uncertainty," regulator CNMV said in a statement on Thursday.

On Wednesday Spain's central bank approved private capitalisation plans for banks Popular (POP.MC) and Ibercaja, and said that it expected four other lenders would need public support.

The Bank of Spain findings may mean that the government could end up using more of the European credit line than the 40 billion euros previously estimated.

Spanish banks' share prices have tumbled in the past year, with biggest loser Bankia (BKIA.MC) down 68 percent, while Popular has shed 66 percent. Banks have reported huge drops in nine-month profits after writing off losses on bad property investments.

Spain had previously extended July's ban to the end of October and said that it would seek European approval for a further three-month ban.

Troubled euro zone peer Greece also extended its short-selling ban to January 31 last week.

(Additional reporting by Huw Jones; Editing by David Goodman and Hans-Juergen Peters)