Ban on Naked Short Selling

This week the BaFin has announced a temporary ban on naked short selling of shares in 10 banks and insurers and naked short sales of debt securities issued by eurozone countries for trading on domestic stock exchanges in the regulated market. The temporary ban further includes naked credit default swaps. The ban applies from 19 May 2010 00:00 until 31 March 2011 24:00, at which point subsequent review will be taken.

Although Germany has taken this action in an overnight ban without other regulators following suit, it is interesting that the latest European Parliament version of the AIFM Directive proposes a European wide naked short selling ban with further decisions to restrict short selling resting with ESMA. Meanwhile Senators in the US yesterday rejected an amendment to ban naked credit default swaps in their bank reform bill by a vote of 57 to 38, but with Senator Dodd later proposing a partial ban with delayed implementation.

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