MFA sounds off on EU short-selling limits

The following is from the MFA...

MFA submitted letters to EU policymakers and market authorities on the decision by certain market authorities to restrict short selling. In our letters, we urged them to consider the past experience when market authorities have implemented short sale restrictions and to refrain from or reconsider their decision to implement a short selling restriction, as evidence shows that such bans have proven to be more harmful than beneficial to markets. Specifically, past experience with short selling restrictions show that:

  • Restrictions are counterprouctive, further deteriorate investor confidence and increase volatility.
  • Restrictions impair the ability of investors to manage risk, leading many to sell additional securities to balance their portfolios.
  • Restrictions freeze the ability of financial institutions to raise capital through convertible bond and convertible preferred security issuances by preventing investors to purchase the convertible products and hedge the risk with offsetting short sales.
  • The absence of a consultation period undermines investor confidence and creates market uncertainty with respect to interpretive guidance and compliance efforts.

MFA submitted letters to: France’s AMF and Ministry of Finance; Italy’s Consob and Ministry of Finance; Spain’s CNMV and Ministry of Finance; Belgium’s FSMA and Ministry of Finance; Germany’s BaFin and Ministry of Finance; European Securities and Markets Authority; European Council; European Central Bank; EC Commission Michel Barnier; and EC Commissioner Olli Rehn.

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